No rush to adjust tax returns

National Post


You wake up suddenly, in a cold sweat, realizing that in the rush to file your 2012 tax return early and claim that juicy refund, you forgot to include a donation slip you received late last month that you left on the piano in your hurried escape to pick the kids up from school.

Don't panic. To make a change to your return, the CRA advises that you wait until you receive your Notice of Assessment. Once you've got it, you can go online and select the "Change my return" option on the "My Account" section of the CRA website. Alternatively, you can send a completed Form T1-ADJ "T1 Adjustment Request" or a signed letter to your tax centre requesting the adjustment, submitting the supporting receipts or documents.

But how far back can you go to correct prior years' returns?

Under the Income Tax Act, the CRA can reassess your tax return within three years from the date printed on your Notice of Assessment. There is an exception to this three-year limitation period which gives the CRA the discretion, but not the obligation, to reduce or refund any tax payable after the three years have passed. The CRA's policy is to only issue a reassessment after the three-year limitation period if the CRA is satisfied that there would have been a reassessment if the adjustment request had been filed on time.

A strange case, decided earlier this year, involved a taxpayer who attempted to amend his 2004 and 2005 personal tax returns in 2010, after the three-year limitation period had expired, whose request was turned down by the CRA. He went to federal court seeking a judicial review of the CRA's decision not to accept his requested amendments.

In court, he argued that "he mistakenly reported his income as $81,500 instead of $8,150 for 2005 and $44,500 instead of $4,450 for 2004."

In order to process his amendments, the CRA requested that he provide further information, such as business records and bank statements, to support his income for those two years. The taxpayer responded that in the years in question, he was a self-employed street vendor who sold flowers and all his transactions were in cash. He further testified that he did not have bank accounts because he had been a victim of identity theft, he did not keep various business records and that he lost some receipts when he moved from Ottawa to Toronto.

The CRA denied his requests to amend the returns as he was unable to provide any evidence to substantiate his income for 2004 and 2005. The issue the judge had to decide was whether the CRA's decision not to accept his amendments was reasonable.

The judge found that the CRA was justified, concluding that since "the (taxpayer) did not provide the (CRA) with any evidence to demonstrate his financial situation in 2004 and 2005, I consider it reasonable for the (CRA) to have denied his request."