Personal tax reviews by Canada Revenue Agency (CRA) are routine. A prior column outlined some of the usual claims reviewed each year by CRA. Here are some trending reviews gaining room on CRA’s radar.
CRA is frequently asking for proof of custody arrangements with separated couples because sometimes a claim is made by both parents for the dependant amounts but this is not allowable, the first year of separation exempt. The duplication of a dependant claim results in a review of both parents’ returns.
If spousal support has been paid and claimed as an “Other Deduction” on line 232, CRA reviews to ensure that in fact it’s the correct amount and has actually been paid. The paper trail to prove this must be meticulous.
Union dues and association fees are reviewed for a number of reasons. First, CRA requires the slips to state official tax receipt. Second, amounts for courses, lectures, conventions, and seminars have to be excluded from the claim. Third, CRA checks for duplication of the claim because sometimes the dues or fees are reported on a T4 and also on an official tax receipt. And finally, CRA wants proof that these amounts were not reimbursed by an employer.
Governments worldwide are ferreting out tax dollars wherever they can so it’s no surprise CRA is increasing its scrutiny on taxpayers earning income from sources abroad and claiming exempt foreign income on line 256 and a foreign tax credit on line 405. Ducks in row on making these claims is imperative.
This type of attention is also being applied by CRA to Canadian’s owning foreign assets as evidenced by little known form T1135 bursting into the forefront of tax reporting last year. Check out CRA’s website on this one, it’s a beauty.
A review of a northern allowance claim must provide a lease agreement or utility bill to prove the physical location of the northern residence.
A review of the volunteer firefighter or search and rescue expense must provide a letter from the department stating 200 hours of volunteer service.
A review of student loan interest expense must be for Canada Student Loans only and the applicable form from the government must be provided.
A review of a public transit claim must include all slips, and daily passes are not claimable.
Avoiding a review is not possible, only lucky. The secret is to ready yourself to make a review straightforward by researching and reporting appropriately on your tax return to begin with. And if a review arrives, resolve it within the 30 day limit. If it isn’t, CRA will re-assess automatically and to correct it requires a T1 adjustment.
If you happen to use a professional preparer, maybe a chat with them will help, although not all firms do this free of charge.