If you disagree with the CRA's assessment of your tax return, make sure you file a notice of objection
By now, most of us have likely filed our 2018 tax return. Tax filing data released by the Canada Revenue Agency on Monday shows that as of this week, the CRA has received just over 18.4 million of the estimated 30 million personal tax returns it expects to receive during the 2019 tax filing season. If you still haven’t filed, you have until April 30 to do so, unless you or your spouse or partner is self-employed, in which case you have until June 17. (Any balance owing, however, must be paid by April 30).
This year, 91 per cent of filers chose to file electronically (vs. paper) and two thirds of returns processed to date show a refund, averaging $1,627. Only 20 per cent of returns filed this season showed an amount owing. The remaining 14 per cent were “nil returns,” meaning no amounts were owing or due to the taxpayer.
Once you’ve filed, you could receive your refund in as little as eight business days, assuming you filed electronically and are signed up for direct deposit. A paper return could take eight weeks before the CRA issues your notice of assessment and any refund.
If you disagree with the CRA’s assessment of your return, you can formally object by filing a Notice of Objection (CRA Form T400A). The deadline for filing an objection is one year from the normal filing due date or 90 days after the date printed on the notice of assessment, whichever is later. If you miss the deadline, you can still apply to the CRA within one year of the deadline for an extension of time. If the CRA denies your application, you may appeal to the Tax Court of Canada.
That was what happened in a recent case, decided late last year, which involved a taxpayer who went to court to request an extension of time within which to file notices of objection for his 2011 and 2012 tax years.
The initial notices of assessment issued by the CRA for 2011 and 2012 were issued on July 10, 2012 and Dec. 9, 2013 respectively. Sometime in late 2014, the CRA undertook a review of the taxpayer’s returns. As part of that review, a CRA auditor sent a letter dated Dec. 8, 2014 to the taxpayer requesting that he provide the CRA with copies of the receipts and documents to support the expenses that he had deducted in computing his business income.
The taxpayer gathered up his documents and mailed them to the CRA, only to have the same envelope and documents returned to him a few weeks later, followed shortly thereafter with a letter from the CRA, and a phone call, in which the auditor explained to him “that he had not categorized his documents properly.” She instructed him to recategorize his documents and to prepare a spreadsheet itemizing the expenses. She also told him that her office was in the process of moving from Ottawa to Sudbury, raising the possibility that any mail sent to her might inadvertently be misdirected. As a result, the taxpayer decided to send the documents to the CRA auditor via fax, rather than by mail.
The documents that were faxed to the CRA in April 2015 consisted of 16 pages, including a fax cover sheet, a full-page letter explaining the expenses pertaining to his business, as well as various schedules and tables itemizing the expenses he incurred in 2011 and 2012.
On May 11, 2015, a different CRA auditor sent a letter to the taxpayer advising him that the examination of his 2011 and 2012 income tax returns had been completed and that the CRA would be reassessing him so as to disallow nearly $27,000 of business expenses deducted in 2011 and nearly $22,000 of business expenses deducted in 2012.
That letter also said that if the taxpayer disagreed with the above-noted changes, he could file an objection after he received his notices of reassessment. The CRA reminded him of the deadline, writing: “To file an objection, you have 90 days from the date on your notice of reassessment.”
On the day the taxpayer got the letter, he phoned the CRA and explained that he had recently faxed various documents to the previous auditor. The CRA told him that there was no indication that any documents had been received and the auditor therefore requested that the taxpayer refax the documents, this time to his attention. The taxpayer did so that same day, taking the bundle of documents that he had previously faxed and sending them to the attention of the new auditor. This was done in May 2015.
On May 19, 2015 the CRA issued the notices of reassessment for 2011 and 2012.
Fast forward nearly three years to early 2018 when the taxpayer was told during a telephone conversation with a CRA collections officer that he had not filed notices of objection for his 2011 and 2012 tax years. He was told he needed to do so, which the taxpayer immediately did, but, unfortunately, these notices of objection were rejected by the CRA as “they had not been mailed within 90 days from the date of the notices of reassessment.”
Thus, the matter wound up in court where the judge considered whether the 16-page fax sent by the taxpayer back in May 2015 could possibly be treated as a notice of objection. The judge reviewed the statutory requirements for objecting, which, while minimal (e.g. you can object by way of a letter rather than using the official CRA form), still requires “at least some indication that the particular taxpayer is objecting to an assessment.”
The judge reviewed the taxpayer’s fax and concluded that nothing in the 16-page fax indicated that the taxpayer was objecting to anything. As a result, the judge had to “unfortunately” dismiss the appeal. As he wrote, “This is a distressing result because the evidence clearly established that on several occasions (the taxpayer) sent to the CRA the documents which it had requested from him during the course of its audit, only to have those documents returned to him, without having been considered by the CRA. Had the CRA considered those documents before finalizing its audit, the results of the audit and the nature of the resultant reassessments may well have been more favourable.”
In a footnote, however, the judge suggested that the taxpayer may wish to consider applying to the CRA for taxpayer relief under the “fairness provisions,” which gives the CRA the ability to waive interest and penalties in certain extraordinary situations.