Nobody likes receiving a letter in the mail from CRA. And when that letter tells you that your return is being reviewed – well, yuck….
Each year, CRA selects tens of thousands of income tax returns for review as part of their Processing Review (PR) Program. The program runs at its peak from August to December each year – they gear up as soon as everyone has forgotten about their tax obligations and filed away all their documents for the year.
The good news is that the CRA’s PR Program is just a routine “check-up” – being chosen for review does not represent a tax audit. It is simply a routine follow-up to verify certain income or deductions that you have claimed. Each year it seems that CRA looks in detail at something a little different – some years we see them reviewing medical expenses, the next year, tuition credits. We can’t predict who or what will be part of each year’s follow up.
To their credit, the CRA has made it very easy to file income taxes online. This takes all sort of “busywork” out of our hands and frees us up to do the actual accounting and tax work that we enjoy and that our clients value. Online filing also means that CRA can assess your return much quicker (and issue your refund much quicker too, if you are entitled to one. Is a tax refund a good thing? Not necessarily – please read our blog about that here: Tax Refunds – Not so great?
Our Canadian tax system is a “self-assessing” one. We report our income and deductions and credits according to our own best knowledge. There are limits to the methods CRA can use to verify our claims – particularly when we electronically file our returns as no slips, receipts, schedules, etc. are submitted. The PR Program helps address this issue.
CRA also conducts a second type of post-assessment review – their “Matching Program”. This program compares what you have filed against what has been filed on your behalf by third-party sources – such as T4’s, T5’s, etc.
The PR Program requires you to provide verification of certain deductions or credits on your tax return. The Matching Program deals with any discrepancies between the tax return you filed and the information filed on your behalf by third parties.
The reason for selection of a particular taxpayer’s return is varied. In many cases, it’s completely random – just luck (or unluck) of the draw. However, there are areas that CRA has determined taxpayers are more likely to make errors on their returns – so any returns with claims in these areas are more likely to be reviewed. If there are significant variances for particular claims on your return year over year, you may attract CRA’s attention. And if you have been reviewed in prior years – and especially if any adjustments feel out of that review – you are also “on their radar”. Read our blog about Commonly Reviewed Personal Tax Deductions by CRA.
Regardless of why a particular return has been chosen for review, the process is the same. You will receive a letter from CRA that will identify what they are looking at and you will be given a time-frame in which to respond (usually 2-4 weeks).
We can’t stress how very important it is that you respond within the given time-frame – whether you actually send them what they are asking for or connect with them to request an extension of their deadline.
Ignoring CRA’s request can result in a reassessment of your taxes (they may deny any credits or deductions they are reviewing if you don’t send them verification) and may result in associated interest or penalties. Appealing a CRA decision can be a very lengthy and costly process – the path of least resistance is just to deliver what they are requesting.
Responding to CRA reviews is just one of the things Pinnacle PAC is well practiced at. Watch your mail for anything from CRA. Forward a copy to us as soon as you can, and we can assess the urgency, difficulty and risk of what’s involved.
You can read more about Review of your tax return by the CRA on the CRA site here:
Contact us if you are selected for review. Contact us anyways – we love to hear from you.
Written by: Willow Enewold, CPA