When CRA reassesses your client

Why read this?

› Your clients have university-age children

› Your clients or their children have been selected for CRA reviews

Why was the return selected for review?

• Random selection
• Doesn’t match the client’s other tax filings
• Client has 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.

Tell your client 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 aren’t already, register with CRA to act on your client’s behalf.

3.

Ask your client for all papers that back up her claims. Check for mistakes.

4.

Send copies of all documents requested to CRA by the deadline. Send papers by mail or online through your client’s My CRA Account or the Represent a Client feature. 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.
• Has your client lost the papers backing up her claim? Write or call CRA to explain why they’re missing. The CRA assessor may be sympathetic to her 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 clients 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 client deserves an extension. If your client 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, without the client mounting 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 on your clients’ behalf.

5.

Wait for a new Notice of Assessment from CRA.

• If it confirms your client’s 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

Tell your clients to

01 Always 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

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06 Fill out line 320 of Schedule 11 with their 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.