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Fredericton Daily Gleaner ~ Capital Appreciation ~ Post Assessing ~ August 14, 2006 - 17 Sep 2006 by TaxHelp
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Got mail? Okay, so it doesn’t have the same homespun message as the milk campaign, but it still is an integral part of the financing of our great land. Each year millions of Canadians file an individual tax return.
And every year the good folks at Canada Revenue Agency (CRA) conduct reviews of tax returns to measure and verify levels of compliance. As most readers know, many of the reporting slips that you receive from the various sources are also sent electronically within the government. That's why forgetting to claim the Employment Insurance you received last January won't fly.
CRA knows the total before you do, and if you don't declare it they automatically add it in. The same goes for other government pay sources like Canada Pension, Old Age Security, Guaranteed Income Supplements, Worker's Compensation and Social Assistance.
Still other income from private sources is reported to you and the government at generally the same time. You get a T3 from a mutual fund company, a T4 from your employer and a T5 from the bank, and copies of these are also remitted to CRA. You file your tax return while leaving out the slip that went to the wrong address and receive your Notice of Assessment for the return that you filed. Sure enough, some time later in the year you get a Notice of Reassessment with a tax bill plus interest (and perhaps a penalty if you're a repeat offender), because the government matches up all the income on file with the tax return you submitted.
In order to maintain confidence in the process, a certain percentage of returns are selected for review (in somewhat of a random fashion), where the source documents are not in the nature of those above. The most common of these areas are child-care receipts, education related amounts, moving costs, charitable donations and medical expenses. The physical return file at the government is pulled to see if the documentation is included. If it isn't, the request goes out. With electronic filing and all it's variations (Efile, Netfile, Telefile), only a computerized record is transmitted. All documentation stays with the taxpayer. So it sometimes seems like these are the only ones being reviewed, but this is not the case.
The letter says in part ‘We regularly conduct review programs as an important part of the self-assessment tax system. We have selected your return for review. To determine if we have assessed your return correctly, we need more information.’
The letter is looking for a response within 30 days. Knowing this is the summer, there are a few days of grace thrown in. For those thinking in a linear fashion, if you haven't taken some action by mid-September, CRA is going to presume that you have taken the deduction or credit in error. They will generate a Notice of Reassessment and a bill should arrive at that most frightening time of year. Of course, there will also be interest tacked on.
At that point, if you furnish the correct documentation, they will again reassess your return and reverse the bill including interest, but you’ll be into the new year before your tax file finally gets straightened out.
This year’s post-assessing program began at the St. John’s Taxation Centre on July 12. So the bulk of the mailings are now hitting the streets.
Taxpayers who use a tax-preparation service like ours generally give the government permission to contact us about any questions that may arise. As such, we often get the letter and provide CRA with whatever documentation they may be looking for if we have it on hand. In this case the client is shielded without even being aware that a request has been made. If we do not have something specific, then we forward the request out directly to the taxpayer, with an offer to assist.
At the end of the day it is easier to respond now. The letter has your specific file reference number on it. They will tell you the dollar amount they are questioning. Your receipts should add up to this. If not, include a letter explaining why. There are some situations where there may have been some carryforward of deductions unused in the past, and although the government should be aware of this, it might escape the reviewer’s attention, so kindly point this out in your note. If you need a hand, give us a call at the office and we’ll try to help out.
Roger Haineault is with Help 4 Taxes. He can be reached by email at roger@help4taxes.ca or by calling 1-888-450-1212. His column appears Monday. |
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