Can I Object to a Tax Assessment Based on the Tax Return I Filed Myself?

The idea of objecting to CRA’s Tax Assessment based on the return that you filed yourself sounds strange doesn’t it? You provided the information, so then why would you have a reason to object to the return?

When you file your return, CRA may have some other information on their file that leads them to believe you had more income or perhaps they determine that you were not entitled to some expenses or credits that you claimed. This causes CRA to assess you for more tax owing than what you filed. Often CRA assesses your return based simply on what you file, but they may revisit your return later and re-assess you.  Such an increased assessment can lead to penalties and interest, which can be significant. In the event that CRA determines you are a repeat offender and negligent in some way they can assess gross negligence penalties of up to 50% of the tax debt you owe!

If you are filing a return late you will be assessed penalties based on how many times you have filed late in previous years. For example, if you filed ONLY your 2012 tax return late, you will be assessed a penalty for late filing equal to 5% of the amount of the tax and then 1% per month thereafter, for up to 12 months. Now, say you filed your 2009, 2010 and 2011 tax returns late as well, the penalty would then be increased to 10% of the amount of the tax debt and then 2% per month for up to 20 months. CRA is unforgiving when it comes to these penalties, even if you have a legitimate reason for filing your returns late.

Returns filed late are often subject to more scrutiny by CRA.

While CRA’s website indicates that you can apply to have penalties cancelled through a Taxpayer Relief application, it can be more effective to leverage a Notice of Objection to object to penalties or the increased tax itself as assessed on your return.  Choosing the Notice of Objection route does not block you from Taxpayer Relief.

Filing an Objection is very time sensitive. An Objection must be filed within 90 days of the re-assessment. If you have a good explanation that will meet CRA’s high standards, you may be able to extend this time frame for up to an additional year. When you file an Objection, if CRA rejects it you then have three choices: 

·        Go to tax court and ask a judge to make a final determination

·        Make an application for Taxpayer Relief

·        Pay the taxes plus interest plus penalties – even if they are unfair

Going to court is the most costly of the three options. Nothing that CRA puts onto the re-assessment is necessarily the final answer or correct and you have a great deal to gain by fighting their arbitrary assessments of penalties and interpretation of what is income, what may be deducted legitimately and what credits you are allowed to claim. With that said, the Objection and Taxpayer Relief programs are both official programs with bureaucratic processes. You will be best served working through a professional to make applications under these programs so as to optimize your chance of being successful. This will also ensure that throughout the process you don’t give CRA any further information that could lead to more problems for you later in the event that your applications are rejected and they commence collection action against you. 

For more information about filing an Objection or a Taxpayer Relief application please visit www.taxsolutionscanada.com or call 1-888-868-1400.

What is a Notional Assessment or a CRA Tax Assessment?

With the Canadian income tax deadline behind us, those who, for whatever reason, chose not to file this year (or any past year) may be thinking that it is too late and that there is no real urgency to file now. Many people don’t file their annual tax returns because they know that they will owe money that they do not have (so why tell on yourself?) or because they made income that they don’t want to report. Regardless of your situation, if you have failed to file your 2012 income tax return beware - Canada Revenue Agency (CRA) simply completes a notional assessment (CRA tax assessment) on those individuals who have not filed their returns. 

What is a notional assessment, commonly known as an involuntary CRA tax assessment? This is when you have not filed your tax returns and CRA arbitrarily completes a tax assessment on your behalf. This means that they will estimate (guess) your income and file your tax return for you. The CRA does not prepare the return in your best interests.  If you are notionally assessed as owing, your tax debt, along with interest and penalties, will be applied retroactively, and CRA will attempt, through all their various means, to collect the money from you.

If you are late filing your tax returns, how does CRA conduct an arbitrary or notional tax assessment? A prime example is your client being audited. Any payment to you will be found during the audit, and CRA may assess you as a result. If you work as a subcontractor, the contractor who pays you will file a tax slip indicating the income they paid you for the year (if you are not being paid in the name of a business). If a builder or homeowner pays you for a side job by cheque, and you don’t report that payment, the homeowner may claim it on their tax return. If CRA asks them for the receipt or invoice to support their expense the dots will then connect back to you.  CRA auditors are experts at looking for and connecting these dots.

Tax slips may have been filed by someone else or calls may have been made to the CRA Snitch Line, meaning the government often becomes aware of your unreported income and that leads to involuntary CRA tax assessments. It does not matter why you failed to report all of your income, whether because you were unaware that you were required to or because you were trying to buy time because you didn’t have the money to pay. The CRA Snitch Line is often used as a revenge or spite site for unreported income, a very common occurrence, especially with ex-spouses or ex-business partners. In both of these scenarios a CRA tax assessment could ensue, or worse, an audit or investigation could begin.

Once you have been notionally assessed, you need to (re-)file your returns voluntarily and right away. This may result in less debt owing. If you operate a business you may not be eligible to claim input tax credits for HST on tax years older than 4 years, so time is of the essence.  It is also a good idea to retain professional representation, especially if you feel that the CRA tax assessment is incorrect. It is never a good idea to try to negotiate with CRA directly, as they will attempt to obtain information from you which can be used against you in the future. 

If you have been sent a notional assessment it is important to act quickly rather than ignoring the involuntary CRA tax assessment. A tax professional that can negotiate on your behalf and help you navigate the entire process is a great way to keep yourself protected.

If you are dealing with a notional assessment (involuntary CRA tax assessment) and need help, please contact Tax Solutions Canada by calling 1-888-868-1400 or visit us online at www.taxsolutionscanada.com.