Once you file your taxes, you want to forget about them. But the Canada Revenue Agency may not let you
No matter how you file your tax return, you should receive a Notice of Assessment from the Canada Revenue Agency (CRA). Your NOA may not seem like an important document. But it provides a summary of your tax return and lets you know whether or not the CRA agrees with what you have submitted. In some cases, the NOA numbers may be different than yours.
It may be easy to dismiss the NOA and forget about it but you should hang onto it. It will make life easier next year when you file. It contains a lot of pertinent information. Receiving your NOA does not mean the CRA has approved your tax return. It means they have processed it based on the information you provided and what the CRA has in their files.
The CRA conducts random reviews over the summer months to make sure that people are claiming their credits correctly. These requests from the CRA are not audits -- they are simply requests for supporting paperwork. There are some deductions and credits such as childcare expenses, larger than usual medical expenses and moving expenses that tend to trigger a request for more information. If you had some major dental work done in 2014, the CRA is probably going to ask for a copy of your receipt. Since these deductions tend to result in bigger tax refunds, the CRA wants to make sure they are legit.
If the CRA requests receipts or more information to support a claim, you usually have 30 days to provide the paperwork. Fail to respond to the CRA in time and they will reassess your return minus the credit or deduction and send you the bill. If you miss the deadline but have the paperwork, you will have to file a T1 Adjustment Form in order to re-claim the credit and be sure to send along the supporting documents. Although not impossible, it is just easier to meet the CRA's deadline the first time.
However, some taxpayers will receive a Notice of Reassessment usually with an amount owing. In these cases, the CRA disagrees with a claim or deduction and re-calculates your tax return based on the new numbers. The good news is you don't have to agree with the taxman but you need to take steps to fight the reassessment.
If you don't agree, you have to file a Form T400A Objection - Income Tax Act and mail it to the Chief of Appeals at your intake centre. You must detail the reasons for the objection and provide all your proof and reasons why you think the reassessment is wrong. Supporting paperwork is always helpful so include it.
The CRA should send you a letter to acknowledge your objection. Your paperwork will be given to an Appeals officer who will contact you to discuss the matter. This process can take up to six months or longer so be prepared to be patient. The Appeals officer may request additional information depending on your objection.
The Appeals officer reviews the case and then issues a result. There are three options:
- Allowed in full: Your objection was successful and the amount will be reversed
- Allowed in part: Some of your argument was accepted and your return will be adjusted to reflect what was accepted.
- Not allowed: You are on the hook for the disputed amount.
Once you file a Notice of Objection, the CRA must suspend collection action until the matter is resolved. However, if you are found to be using the tax review process to avoid paying a tax bill, you may be hit with a penalty.
If your Notice of Objection is disallowed, you can appeal to the Tax Court of Canada. If the amount of tax in dispute is less than $25,000, you can do so under Informal Procedure. The court is not bound by the formal rules of evidence when conducting a hearing under Informal Procedure and there are no filing fees, which makes it easier for taxpayers to represent themselves
For taxpayers facing a reassessment, my advice is usually to pay the outstanding amount if possible, and then work your way through the objection process. If you win, you will receive a refund. If the taxman doesn't agree with your case, then you are not facing additional interest charges.
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