How to handle a CRA reassessment

Has the CRA come knocking with questions, or made what you believe is a serious mistake? This is one of a series of articles aimed at helping you prepare how you’ll respond to Revenue Canada.

Why read this?

› You have university-age children Has the CRA come knocking with questions, or made what you believe is a serious mistake? This is one of a series of articles aimed at helping you prepare how you’ll respond to Revenue Canada.

› You or your children have been selected for CRA reviews

Why was the return selected for review?

• Random selection
• Doesn’t match your other tax filings
• You have a history of CRA reviews

Less common triggers include

• certain credits and deductions that are automatically flagged for review, says Western University tax professor Ann Bigelow;
• appearance of a substantial new claim on your return, says Paul Woolford, tax partner at KPMG.

What to do?

1.

A review isn’t the same as an audit, which is a more extensive examination. A review simply evaluates specific claims for accuracy.

2.

If you’d like your financial advisor to act on your behalf, ask him to register with CRA.

3.

Ensure you have all your papers that back up your claims. Check for mistakes.

4.

Send copies of all documents requested to CRA by the deadline. Send papers by mail or online through your My CRA Account. Include CRA’s reference number.

• Can’t make the deadline? Let CRA know ahead of time, and explain why. Otherwise, it may disallow the claim automatically; and, says Bigelow, it will take more effort to get a claim re-allowed after the fact.
• Have you lost the papers backing up your claim? Write or call CRA to explain why they’re missing. The CRA assessor may be sympathetic to your situation and grant the claim, says Woolford.
  • If you can’t substantiate the claim, CRA will likely reduce it, says Bigelow.
  • Institutions like post-secondary schools often issue duplicates. Ask for a new copy of the T2202.

  Did you know?

  According to a BMO Nesbitt Burns study, 20% of Canadians with tax refunds in 2013 planned to save or invest them in RRSPs, RESPs, or TFSAs.

• Already missed the deadline? Contact CRA to explain why your deserve an extension. If you didn’t know CRA was trying to get in touch until recently, the tax agency may grant an extension, says Woolford, but it’s not guaranteed.
• Did the review take place sometime ago, and you didn’t have a defence? It may not be too late. CRA will consider revising a review if it happened fewer than three years ago. You can still submit additional information, or have your advisor do so on your behalf.

5.

Wait for a new Notice of Assessment from CRA.

• If it confirms your original return, job well done.
• If the review is unfavourable, you can object.

Sources: Ann Bigelow, CA, MPA, tax professor, Western University; Paul Woolford, CA, CGA tax partner at KPMG

Common mistakes that lead to review:

› Not submitting all supporting documents

› Claiming interest on a kid’s student loan (the student must claim this deduction)

› A student claims interest on other kinds of loans, like a line of credit used for school

› Parent completes tuition forms incorrectly

› Taxpayer claims tuition for ineligible courses (i.e., below university or college level)

› Taxpayer claims tuition or textbook amounts for the academic year (e.g., 2013-2014), instead of the calendar year (2013)

› Parent claims too much

Make sure you

01 Keep receipts and supporting paperwork for six to 10 years

02 Put tax-related documents in a dedicated folder to avoid a tax-season scramble for slips

03 Always double-check reviews

04 If you must estimate a claim amount, be conservative

05 Make sure children list their permanent addresses with CRA, so paperwork doesn’t get lost in the mail

06 Fill out line 320 of Schedule 11 with your children’s incomes, even if another person claims the tuition

07 Claim the tuition amount even if children go to post-secondary school outside Canada. First make sure the program qualifies under CRA rules. Then the school and student must sign a TL11A, “Tuition, Education and Textbook Amounts Certificate— University Outside Canada”

08 Only claim up to $5,000, minus the amount their children deduct. Students must apply the credit to reduce their tax to zero before a parent can use the remaining deduction

Compiled by Jessica Bruno, content editor of Advisor Group.