Tax Tips & Pits: Taxman Reviews – Here we go

"Here’s a heads-up on how to deal with the increasingly more frequent Canada Revenue Agency (CRA) review."

If you haven’t already heard, tax season is extended to Monday, May 2 this year because April 30 falls on a weekend. Now if you would like to prevent tax season extending even later, here’s a heads-up on how to deal with the increasingly more frequent Canada Revenue Agency (CRA) review.

Medical expenses – CRA requires slips to identify specifics and receipts to be dated and marked paid. If expenses have been submitted to a private health plan, CRA reviews that only the portion you paid is claimed.

For travel for out of area medical services, CRA requires a doc’s referral note prescribing the distant service as being necessary.

Moving expenses – despite what you would think are obvious deductible expenses, some aren’t. So, CRA reviews to see if you claimed such things as job and house hunting trips, mail forwarding, and repairs to the old or new home. These are not deductible.

Also, if you buy a home in the new location, the allowable expenses for that purchase cannot be claimed until the former home is sold, often requiring a T1 adjustment a year later. CRA also requires proof that an employer didn’t reimburse any part of the moving expense. And, the maximum moving expense that can be claimed is the amount of earned income at the new job. Any excess is carried forward.

Donations – CRA requires all claimed amounts to be on an official tax receipt, so the purchase of event tickets or auction items purchased are not permissible claims as official receipts will not be issued for these.

Tuition – this claim is transferable to a parent and to do so, it requires some steps. The student must file a return. The student must use that portion of the deduction needed to reduce their tax to zero before transferring. If any is left over, only a maximum of $5,000 can be transferred. And finally, CRA reviews to see if the T2202a permitting the transfer is signed by the student or the transfer is denied.

RRSP contributions – CRA requires investments made in the first 60 days of the current calendar year to be reported on the tax return currently being prepared, and people are unaware or forget.

Union dues – CRA reviews for duplication of the claim since sometimes the amount appears on a T4 because an employer withholds the dues, plus the organization forwards an official slip to the person, so the claim can end up being reported twice. CRA also reviews to make sure a person isn’t reimbursed by an employer for the dues.

Foreign income line 256 and foreign tax credits line 405 – let’s just say, be accurate. Period.

There’s no trick to avoid a review. Just be sure to report correctly, keep records, and respond to CRA quickly. You have 30 days, including postage time.

Finally, if engaging a professional tax preparer, it’s fair to ask how they will help you in the event of a review, and at what cost.

Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.

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