A word to the wise: be on top of your tax game all year round.
Remember, the taxman works 12 months a year and I would like to say that 2012 proved to be an active year for Canada Revenue Agency (CRA). New labour language with CRA staff now allows for workload to be shifted throughout Canada so if one regional office is quiet, it will pick up the slack from other regions.
Both pre-reviews and reviews of tax returns increased for the 2011 tax year.
A ”pre-review” is a return CRA doesn’t initially accept as officially filed until additional information is investigated which may or may not require contact with the taxpayer and the presentation of that information, while a “review” is a return accepted and assessed but then flagged by CRA for investigation and additional information is requested of the taxpayer.
The pre-review, as disconcerting as any review may be, is the better type of review since any change that may be forthcoming is done prior to CRA assessment and, if applicable, before the issuance of a refund cheque, or more importantly, before the spending of that refund by the taxpayer.
Which begs the question, what can happen after a “review”?
Remembering that at the review stage CRA has already completed its initial assessment so, if upon review of the supplementary information CRA chooses to conduct a reassessment, there is a possibility the taxpayer will have to pay back some or all of a refund if it had been given, or worse, pay tax.
Since most people don’t have disposable income kicking around to pay CRA, and CRA is not quick on offering payment plans, this situation is not a good one.
So what’s a taxpayer to do to avoid this situation?
From the get-go, when it comes to your taxes keep accurate records throughout the year.
There are three components to this statement. The first is “keep” the records. Keep, as in don’t throw away or lose the original documents, receipts, slips, and the like.
Secondly, gather these pieces of information 12 months a year. Use a shoe box if you have to!
The third is “accurate” and fortunately by default, keeping the documents is your best assurance of accurate information. However, recording specific details on those docs may also prove valuable (item, reason, date, etc).
Having said this, following these tips doesn’t necessarily ensure accurate reporting to CRA.
A humble suggestion – have someone who knows what they are doing prepare your taxes if you are not comfortable doing it. It is amazing how many people actually had the information needed but it was missed or misreported.
And if you choose to use a professional preparer, it is a fair question to ask their protocol for handling any review of your return – are they your first line of support, or are they in the background? Do they charge or is it part of the service?
For what it’s worth, it appears the major CRA hot items of interest for last year’s tax season were medical, moving and donation receipts – the perennial favorites.
There was also a keen interest in custody arrangements, likely because of the various lucrative dependant claims available. In addition, tuition and education amounts and interest on student loans had the eye of CRA. Finally, as all governments scramble for every tax dollar, taxpayers earning income from sources abroad were asked by CRA to prove payment of taxes to that foreign country on that foreign income.
As a footnote, if you receive a CRA request for information, don’t ignore it.
Deal with it in a timely manner. Remember, the effective date for the application of interest and penalties is retroactive to April 30.
Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him or see all previous columns at ron.clarke@JBSbiz.ca