If you waited until May 1 to file your personal tax return, you'll likely be
receiving your Notice of Assessment shortly. That doesn't necessarily mean,
however, that the Canada Revenue Agency agrees with everything you've submitted
and you're off the hook.
Normally, these "assessed as filed" notices, which are electronically
generated, simply mean there were neither computational errors on your return
nor were there amounts on your return (such as employment income, income tax
withheld, etc.) that disagreed with the CRA's own records.
It does not, however, mean that the CRA has completed a full review of your
return and has agreed with every deduction, amount or filing position claimed
therein. Each year, the CRA selects a number of tax returns for review under one
of its three formal review programs: the Pre-Assessment Review, Processing
Review or Matching Programs.
Under the Pre-assessment Review Program, conducted between February and July,
the CRA reviews various deductions and credits on returns before issuing the
Notice of Assessment. The Processing Review Program, generally undertaken from
June to November once all the returns have been submitted, is similar, but the
review takes place after the Assessment Notice has been issued.
Finally, the Matching Program, which also takes place after the Notice has
been mailed, compares information on your return to information provided to the
CRA by third-party sources, such as employers, who report income on T4 slips,
and investment dealers and fund companies, who report investment income on T3s
and T5s.
How are returns chosen? Some are randomly chosen, but contrary to popular
perception, the CRA maintains that "the selection process for reviewing returns
is the same whether the return is filed on paper or electronically. This means
any tax return may be selected for review."
It's critically important to keep the receipts and documentation to support
your claims in case your return is selected for review. If it is, the CRA will
try to verify your claim based on the information it has on file. If they need
more information, the CRA will contact you directly with such a request.
When responding, ensure that you do so within the 30-day time limit and
provide all the receipts or other documentation requested by the CRA. If, for
any reason, your receipts are not available, include a detailed, written
explanation of your situation and why your claim should be allowed. A recent tax
court of Canada case emphasized the importance of keeping receipts. The
taxpayer, attempting to justify claimed expenses, failed to keep proper records
and receipts.
The judge, in denying much of the taxpayer's expenses, admonished him,
saying: "You just can't come and say, 'Oh, a couple of thousand dollars of
promotion expenses should be accepted just because I say so.'
"This is a self-assessing system. You must keep those records."
This serves as good advice to all taxpayers.
- Jamie Golombek, CA, CPA, CFP, CLU, TEP is the vice-president, taxation &
estate planning, at AIM Trimark Investments in Toronto. He can be reached at
jamie. golombek@aimtrimark.com.