12/01/2016 07:49 EST | Updated 12/01/2016 07:49 EST

Proving Yourself To The Taxman

No one wants to receive a brown envelope from the Canada Revenue Agency but if you file a tax return, you can expect to get some correspondence from the taxman.

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No one wants to receive a brown envelope from the Canada Revenue Agency (CRA) but if you file a tax return, you can expect to get some correspondence from the taxman. During the summer months and beyond, the CRA conducts a matching program and reviews returns to check taxpayers are claiming the right income, deductions and credits.

Part of this process can be asking for proof of what was claimed on your return. With more and more Canadians filing online, the CRA will ask for receipts to make sure you have the paperwork to back up any claims. They also follow up on anything that is out of the ordinary on your return.

Some of the requests seem reasonable based on past returns. For example, if you had major dental work done in 2015 and claimed higher than your usual medical expenses as a result, there is a greater chance the CRA will request your receipts. It is part of ensuring Canada's self-assessment system is working.

The request for information is usually tied to higher value tax deductions and credits such as tuition, moving and business expenses and foreign tax credits. Since tax credits for children can also add up, these are also often reviewed. And this means parents are being asked to prove that they are caring for their children. While parents may think it is obvious based on how they spend an average day, the CRA requires more than your word if they ask for proof.

Single parents are allowed to claim the amount for eligible dependant credit which used to be called equivalent to spouse. This results in about $1,700 of federal tax savings so it is a significant tax break for one-parent families. More and more of these parents are being asked to provide proof that their children lived with them during the tax year. This can involve letters from a teacher, doctor, daycare and other sources to say the children live with the parent.

It is not just single parents getting targeted. Two-parent families are also being asked to prove they care for their children in their own home. It may feel intrusive but the enhanced Canada Child Benefit means the CRA wants to know the credit is going to households caring for children. Again, proof can be letters from a teacher, doctor, daycare worker or clergy that supports that you are caring for the children in your home.

There are extreme cases that become a taxpayer nightmare. One single mother with three children was asked to prove her children were born in Canada and the CRA withheld her Canada Child Tax Benefit until it had sufficient evidence. She provided the CRA with a comprehensive list of documents to prove her case including a letter from the doctor who delivered the children. The CRA still refused to recognize the claim.

Eventually, the case involved the Taxpayers' Ombudsman, who concluded she had provided more than enough evidence to confirm the children's' status. The result was a report called Proving your Status which resulted in changes to the policy for establishing CCTB eligibility.

If the CRA requests proof for your claims, you usually have 30 days to provide the documentation or the taxman will reassess your return without the credits included. This usually means you end up with a tax bill. It does not mean your entire tax return is being reviewed. As long as you have the paperwork to back-up your credit and provide it to the CRA in time, you should have nothing to worry about.

No matter how you file your return, make sure you keep receipts and documentation. And if you are claiming high value credits like moving expenses, be ready to send in the paperwork if the CRA asks. The Canadian tax system relies on the taxpayer self-reporting so the CRA has to have some checks in the system to keep people reporting accurately.

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