When the tax man comes knocking

If your income tax return comes back to you with questions, be ready to comply quickly - and know your options

Matthew Elder 28 May, 2019 | 2:00PM

More than a month following the deadline for filing a 2018 income tax return, by now you’ve likely heard back from the Canada Revenue Agency in the form of a Notice of Assessment. This is the confirmation from the tax man that your return has been processed and accepted as filed – however some of us aren’t so lucky.

In some less fortunate cases, you might receive a request for more supporting information. This request may be made in a written review letter, either mailed to you or, if you’re a signed up for the CRA’s My Account online access service, sent through to you electronically. In some cases, it’s an appointment for a field audit where the CRA comes to visit.

What happens when your taxes come back

The CRA will give you a timeframe for supplying the information. If you can’t provide the documents by the specified deadline – or if you need more time to reply – call the telephone number that is provided in your letter to explain your situation. If you don’t reply, your claim may be disallowed.

Perhaps you’ve not yet received your Notice of Assessment and heard nothing from the tax department, which might be an indication the government is reviewing your return in detail – rarely a good situation for a taxpayer.

With supporting receipts and other documents not normally required to be submitted when a tax return is filed, complicated or unusual situations may prompt the CRA to request you to submit certain or all documentation prior to issuing a Notice of Assessment. This could be due to significant changes in amounts reported from previous returns – or simply a random request.

In some cases, if only a small amount of information is requested, the CRA may allow you to scan the requested material and sent it electronically via the My Account service. Once this information has been received, reviewed and approved by the tax department, the Notice of Assessment will be sent to you. If you are sending the requested information in hard-copy form, be sure to keep copies of everything you send.

In most cases, once you’ve received your assessment, normally you can put the 2018 taxation year behind you. However, the CRA conducts a processing-review program and may randomly select your return for a full review. This takes place during the second half of the calendar year. This process will often result in a Notice of Reassessment, which will explain any adjustments made to your return and, if applicable, include a bill for additional tax. A reassessment may even determine you have over-paid and a refund will be made.

There also can be a higher level of review, which can take place any time. This is a detailed process that the CRA says “identifies and gathers information on trends and situations in areas of non-compliance that may represent a risk to the self-assessment system.”

A tax return for a particular year can be reviewed for any reason for up to six years after a return has been filed. However, a return can be reassessed beyond that timeframe if the CRA has reason to believe that misrepresentation or fraud was involved. If past taxes are found owing, the taxpayer would be liable for that amount as well as any penalties and interest owing. In more serious cases, the tax department may take legal action against you. Revenu Québec has parallel review programs, but acts independently from its federal counterpart.

State your case

If you dispute a reassessment, you can file a Notice of Objection by filing a specific form. The CRA will confirm receipt of this form within a month of its receipt and an appeals officer will contact you to discuss what you will need to do to support your objection. Many disputes can be resolved at this level, but, if necessary, the matter could proceed to the Tax Court of Canada, Federal Court of Appeal and ultimately the Supreme Court of Canada. A similar process exists for Quebec tax purposes.

On the flip side, you the taxpayer can also initiate a change to a return at any time in the future. For example, you might have forgotten to claim a credit or deduction on your tax return, or you may have overlooked using capital losses from previous years to reduce the amount of a capital gain. In many cases this can be done online through the My Account service. Alternatively, if you used tax software to file your return, you can make a change using that tool via the CRA’s ReFILE service. If you prefer paper – or you have a more complicated situation – a tax return can be amended by filing the CRA’s T1-ADJ form (for Quebec tax purposes, Revenu Québec’s TP-1.R-V).

In all cases, you cannot take steps to amend a tax return until after you have received a Notice of Assessment for the year in question. It normally takes two weeks for the tax department to respond to an adjustment request made electronically. For a paper request, this may take up to two months.

Taxation can be onerous in this country, but through honest disclosure and use of the credits and deductions available, you can minimize how much you pay. But should the tax man come calling, be prompt in complying. Remember, if necessary, there can be room for negotiation as to amounts payable and the period of time to settle your account. And should you disagree with how a tax matter has been addressed by the CRA, you can appeal to the Taxpayer’s Ombudsman, which enforces the Taxpayer Bill of Rights. Issues with Revenue Quebec can be pursued with the Quebec Ombudsman, which ultimately enforces the province’s Charter of Taxpayers’ and Mandataries’ Rights.

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Matthew Elder

Matthew Elder