Personal Finance

Your tax return can be reviewed and reassessed months or even years after it's filed
By Matthew Elder | 08/08/17

Filing your 2016 income tax return is by now a distant memory. But hopefully it's not on the mind of the tax man. Even though you are certain your return was an accurate representation of your taxable income, and contained no contentious claims for credits or deductions, it is possible it could be selected for random review by the Canada Revenue Agency.

About the Author
Matthew Elder is Principal of Sensible Communications, a Toronto-based communications consultancy specializing in the financial services industry. He has more than 30 years' experience in financial journalism as an executive, editor, columnist and reporter. He is a former Vice President, Content & Editorial of Morningstar Canada. Previously, he was an editor and columnist at the Financial Post and The Gazette in Montreal.

It's unlikely, but possible -- and we're not trying to ruin your summer! During the assessment process that follows the filing of a return, most returns are reviewed by the CRA's computers with no manual intervention.

However, some returns may be randomly flagged for future review based on typical areas of concern based on the nature of your employment or investment activities. Examples are the self-employed (usually there is no T4 information to cross reference what is reported on the return) or those employed in the construction, retail or restaurant industries, which often are cash-based.

Other areas of potential scrutiny are situations where one's income fluctuates significantly from one year to the next, or when someone continually reports business or rental-property losses. A return could even be earmarked for review if the taxpayer's income is significantly lower than others in the same postal code. These reviews are conducted from August to December under the CRA's processing-review program.

A return could also be subject to future review under the CRA's matching program, generally carried out between October and March. This process checks if amounts entered on a return based on information slips that are sent to the CRA as well as to the taxpayer, such as T4s (employment) or T5s (investment income), show discrepancies from what the CRA has on file.

Under either review program, if the CRA finds a need to adjust anything filed on your return, it will issue a notice of reassessment with instructions on what information is needed, along with what amount of additional tax needs to be paid (or, in some fortunate cases, what refund will be issued).

There is a third, higher level of review known as the special assessments program, which is an in-depth process intended to gather information on trends and situations in areas of non-compliance that the CRA nobly says "may represent a risk to the self-assessment system." (The Canadian income tax system is fundamentally an honour system in which taxpayers are expected to honestly report their income details.)

These three types of review are not audits. However, an audit can result from a matching-program review. For information on audits, go to the CRA website.

Notice of objection

If you disagree with a notice of assessment or a notice of reassessment, you can file a notice of objection. This must be filed within one year of the tax-return filing deadline (April 30 for an individual's tax returns, June 15 for those reporting self-employment income) for the taxation year in question, or within 90 days of the date the assessment or reassessment notice was issued.

However, don't expect quick results. The processing of notices of objection has been notoriously slow, although the CRA recently announced it was implementing a program to set new service standards that will ensure you are contacted within a month of filing a notice, and that most low-complexity objections would be solved within 180 days. These objections typically are related to individual tax credits, personal deductions, the Canada Child Benefit and the disability tax credit. More complicated objections will take longer to resolve.

To file an objection, you must complete a prescribed form on which you provide clear details of the issue. You must attach documentation to support your claim. Information on how to obtain the appropriate forms is found on the CRA and Revenu Québec websites.

Many disputes are resolved at this level. Unresolved cases can be taken to the Tax Court of Canada, Federal Court of Appeal and ultimately the Supreme Court of Canada. A similar process exists for Quebec tax purposes.

Six-year limit

The CRA has the right to request information for up to six years from the end of the applicable taxation year. However, if a return is suspected of including fraudulent information, the tax department has the right to reassess it at any time in the future if it has reason to believe that misrepresentation was involved. In such cases, a return filed in any past year can be reviewed, regardless of how much time has elapsed. If past taxes are found owing, the taxpayer would be liable for that amount as well as any penalties and interest owing.

You can amend past returns

Outside of the reassessment/objection process, you have the right to make changes to a return you already have filed. For example, you might have overlooked a tax credit or deduction, or a claim may not have included the full amount to which you are entitled. You must wait until you have received a notice of assessment for the year in question.

A return may be changed for any of the 10 preceding taxation years. In 2017, you may make changes for any return going back to 2007. This may be done online if you are registered for the CRA's My Account (and Revenu Québec's CliqSecur). Alternatively, you can obtain the T1-ADJ form from the CRA and/or the TP-1.R-V form from Revenu Québec and file by mail. For more information: http://www.cra-arc.gc.ca/changereturn/ and http://www.revenuquebec.ca/en/citoyen/declaration/modifier/modifier.aspx.

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