We've all felt it - that sense of impending doom when we
check our mailbox and find a letter from the Canada Revenue Agency
(CRA) questioning an item in our tax return. The initial feeling is
panic, followed by questions of "What have I done wrong?"
and "Why am I being audited?" However, there is no reason
to fret; every letter from the CRA does not mean that you are being
audited. In most cases, it simply means that your return has been
selected for review. Take a deep breath; there is a significant
difference between a review and an audit.
An audit is an extensive inquiry into one's entire income
tax return, usually for more than one taxation year. The CRA will
examine most amounts in the tax return, and support will need to be
provided for discretionary deductions and filing positions.
A review, on the other hand, is simply a request from the CRA
for support for a single amount in a tax return for a particular
year. There are different types of reviews, but all are routine
procedures that occur either before or after the CRA assesses an
individual's tax return.
That being said, there are certain factors that tend to trigger
a CRA review.
"Why me?" Potential reasons why your return may be
selected for review
The CRA says that whether you file your tax return by paper or
electronically does not impact whether you are chosen for a review.
Our practice has indicated differently. Now that the majority of
personal income tax returns are electronically filed without any
tax slips or other supporting documentation, the number of
pre-assessment and processing reviews (i.e. reviews that take place
shortly after a return has been assessed) has increased
significantly. Given that tax returns prepared by an accountant now
almost always have to be electronically filed, we expect the high
volume of pre-assessment and processing reviews to continue.
Tax returns may be selected for review for several reasons,
Your review history. If you were selected for review in a prior
year, and an adjustment was made to your return as a result, you
are more likely to be selected for another review in a future tax
A discrepancy was found between information reported on your
return and information reported on a tax slip received by the CRA.
This is the result of the CRA's matching program, where its
computers match up the tax slips it has received with the tax slips
reported by the taxpayer. If there is a discrepancy, your return is
flagged for review.
Particular types of deductions or credits claimed. We have found
that the following types of deductions and credits are most likely
to result in a tax review: tuition, rental amounts claimed for the
Ontario Energy and Property Tax Credit, Federal foreign tax credits
claimed by individuals earning income outside of Canada, donations,
medical expenses and childcare expenses.
Consequences: Why the Canada Revenue Agency review request
should never be ignored
Neglecting a request from the CRA for information is never a
good idea. The CRA will not simply go away, and there are many
potential consequences if the request is ignored. If accurate and
complete information is not provided in the specified time frame in
the review letter (typically 30 days), the amount in question will
be denied or modified based on the information available to the
For example, if the review request asks for the documentation to
support the donation tax credit and all of your charitable donation
receipts for the year are not sent to the CRA within 30 days, your
donation credits will be disallowed and your net taxes owing will
be adjusted accordingly. Any tax balance owing may be subject to
interest and possibly penalties.
However, the CRA is fairly lenient and offers another chance at
redemption. If you obtain and send your documents after the date
indicated on the original review letter, the CRA will review these
documents at the time that you send them and, more often than not,
they will revise the amount in due course (although it is often a
much longer process than if the supporting documents were submitted
within 30 days of the original request).
Though they may seem intimidating, tax reviews are part of the
system of "checks and balances" in our self-assessment
tax system. As long as you ensure that accurate records are kept
and all relevant receipts, slips and documentation are readily
available, responding to these tax reviews is quick and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
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