If the CRA is reviewing your tax return, you’re going to want to read this.
June 10, 2022
You’ve filed your taxes, and the Canada Revenue Agency (CRA) has sent you a Notice of Assessment (NOA), confirming the amount of your refund or amount you owe. But don’t breathe a sigh of relief just yet.
Every year after the end of the tax season, the CRA conducts manual reviews of a small percentage of the returns filed to make sure that taxpayers were in fact eligible for the deductions and tax credits they claimed and didn’t claim more than they were entitled to. People colloquially refer to this as an audit, but that term is really reserved for business income. When it comes to individuals, the CRA calls this a review, but in the end, it’s all pretty much the same to the person being reviewed!
This year, the first post-assessment review letters, as they are called, were sent out on May 26.
How do the CRA decide which returns to review?
Mainly, this will depend on what types of deductions or tax credits you claimed. Claims for employment expenses, moving expenses and medical expenses are some of the most common ones targeted, especially if your claims are what the CRA might consider excessive. For example, clients who are in assisted living facilities can claim their attendant care, the cost of which can sometimes exceed their income. This is perfectly legitimate, but you can expect that the CRA will want to check to make sure.
Claims for the foreign tax credit also attract a lot of attention. The CRA will want to make sure that you really did pay all that tax to the country you're getting your pensions from. Typically, they'll want to see your foreign tax return or a letter of assessment from the foreign tax authority confirming your final tax liability. And, if the tax return or letter of assessment is in a foreign language, they'll want you to provide a certified translation, so prepare to obtain that.
If you were wrong before, be prepared to be reviewed again.
Your compliance history is also important in determining whether you are reviewed. If you have been reviewed once before and passed with flying colours, you'll be less likely to be selected again. If, on the other hand, your claim had errors, you can expect to be reviewed again for the same type of claim in the future. In fact, instead of selecting you for post-assessment review, you'll probably be selected for pre-assessment review. This means that they will not even assess your return before taking a close look at what you are claiming.
What’s in the review letter?
Review letters typically contain pages of boilerplate language you need to parse through, as much of it won’t apply to your specific circumstance. For example, the review letter for moving expenses will include instructions as to what type of documentation to send in if you claimed temporary living expenses – regardless of whether or not you actually claim temporary living expenses. So, don’t be alarmed if the letter contains info about stuff you know you didn’t claim being mentioned in your letter! We’ve seen many taxpayers panic at the sight of this language, so it’s important to know that these letters contain stuff that doesn’t pertain to you. And for this reason, we encourage you to contact your tax professional to advise you as to exactly what needs to be sent in. Your tax professional can also upload the documentation for you electronically on “Represent a Client” – a feature of the CRA’s EFILE. Whichever way you do it, make sure that the documentation is legible, calculated, cross-referenced and easy for the reviewing CRA agent to understand. Just throwing a pile of receipts in an envelope will not win you a sympathetic review.
When you get the letter, move quickly to respond.
The letters also give you only 30 days to submit the required documentation. If you have just returned from a 3-week summer vacation and find that you only have 7 days left to obtain your documents and submit, this can also be a cause for anxiety. Fortunately, the CRA are understanding in these situations and will typically give you an extension if you phone up and explain the situation. The important thing is not to ignore them. Do that and your next letter from the CRA will tell you that your claim has been disallowed in its entirety.
Then comes the waiting game.
Once you have sent your documentation in, several months will pass before you hear the results of their review. Hopefully, this will be a letter thanking you for your time and confirming the original assessment. Or maybe they will have spotted an error and revised your claim by a few dollars. If they make a substantial reassessment, take the letter to a tax professional to make sure that they are correct. If there is any doubt about it, get the appeals process in motion by filing a Notice of Objection.
Tax audits might cause an initial panic, but it’s best to tackle it head on and get everything squared away in a timely manner to avoid any penalties. H&R Block offers Peace of Mind® Extended Service which can help filers if an audit pops up with both answering your questions and representing you to the CRA or Revenu Québec. And of course, if you need help filing your taxes, you can choose from one of four convenient ways to file: File in an Office, Drop-off at an Office, Remote Tax Expert, or Do It Yourself Tax Software.