Making random tax reviews quick and painless

Ron Clark shares tips on how and why you should be prepared for CRA tax review.

Groundhog Day is over and our winter predicted.  Here’s another forecast – one likely more accurate than the groundhog’s – Canada Revenue Agency’s (CRA) annual random review of taxpayers’ claims.

“But I haven’t even thought about filing my 2013 taxes!”

Well, you might want to give it some thought.

Each year CRA, in addition to its audits, conducts random reviews on specific types of claims.  There are some typical reviews requested almost every year so here’s a heads-up – a little preparedness for 2013 taxes.

Over the past several years the major CRA hot items of interest have been medical, moving and donation receipts, as well as tuition and education amounts. And custody arrangements for kids of separated couples seem to be gaining space on the CRA radar.

Medical expenses because this claim can add up to a lot, especially since it’s grouped as a family.

Moving expenses because so many things aren’t deductible and yet people claim them.  And again, this can be a sizable deduction.

Donations for certain will be watched this year because of the new “super credit” for first time donors – more on this and other new credits in a future column.

Tuition is tracked by CRA often because of the transferability of this claim to a parent.  On this front may I strongly recommend the student actually sign the T2202a permitting the transfer.  An unsigned form will lead to a denied claim by CRA.

There has also been a keen – and increasing – interest in custody arrangements, likely because of the lucrative dependant claims.  A visit to the CRA website is recommended to understand who can claim what … or more accurately, who cannot.

By the way, a dependant claim made by both parents for the same child only messes it up for both people.  It is not a case of first filed with CRA, wins.  The duplication of a dependant claim will result in CRA denying the claim for both parents.

Some additional predictions – since governments worldwide are ferreting out tax dollars due, expect more attention by CRA to taxpayers earning income from sources abroad.  CRA not only wants this reported, but is wanting proof of taxes paid, if any, to that foreign country on that foreign income.

This type of attention may also apply to Canadian’s owning foreign assets so pay strict attention to form T1135 for the reporting of such assets, a topic worthy of its own column.

So what can a taxpayer do to avoid a review? There’s no trick to avoiding these reviews, after all, they’re random, right?

The key is to set-up for a quick, clean and painless review.  The best defense is to research thoroughly, identify clearly, and report accurately on your T1 return.  And if a CRA review request arrives, deal with it in a very timely manner – CRA gives only 30 days to respond.  If engaging a professional preparer, it’s fair to ask if they are your first line of support, or are you on your own?  Do they charge or is it part of the service?

Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email ron.clarke@JBSbiz.ca. For previous columns visit www.JBSbiz.net.

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