Canada Revenue Agency letter campaign

CRA is sending out another 29,000 letters to Canadians in the next two months. One would want to wonder why would they be doing so. The information below is provided by CRA from their web site. However one needs to look at this behaviour as part of the bigger tax picture.

The first thing that comes to mind is that most of the letters will be for information purposes and promotes the Voluntary Disclosure Program (VDP). I can see where this makes sense for scaring those in the underground economy to come forward. And the letters of intent to audit does affect he ability to file a VDP.

I think the scaring is more about short term cash than long term tax collected. CRA has become so sophisticated that they are going to catch everyone sooner or later.

So the message to Canadians really reads: Pay me now or pay me later. CRA will get more later, but they need the money now, hence the scare letters.

Make no bones about this situation, it is serious. The days of being a tax evader are over. Yes… there will be some people who get away with it, either because they know how, or simply the luck of the draw on who CRA has time to go after.

CRA writes on their site in response to the question of why me?: ” Letter recipients were chosen at random within your industry segment.” Frankly that is pretty hard to believe… why would they do random audits when their computers will tell them exactly who to target? My guess is that random is scarier than targeted audits.

The claim by CRA is that Canada’s tax system is based on self-assessment, which means that individuals are responsible for accurately completing and filing their tax returns on time. The Canada Revenue Agency (CRA) provides Canadians with the information they need to meet their income tax obligations. Mostly they just audit and use that as a means to teach taxpayers and of course to get more money that way.

In 2010, the CRA began a letter campaign which involved sending 37,000 letters to Canadians. These letters purportedly served two purposes: to educate taxpayers on specific claims they made on their income tax and benefit returns and to provide notice of the CRA’s intent to audit some taxpayers. It is well advised to note that the letter of intent removes your possibility to file a VDP.

As part of the second year of its campaign, the CRA will send 29,000 letters similar to those described above to taxpayers in January and February 2011.

Educational letters and intent to audit letters will be mailed to those sectors where taxpayers or industry segments are at risk of misunderstanding their tax obligations or willfully avoiding paying their taxes.

If you are one of the Canadians who recently received a letter providing you with information about expenses that you deducted on your income tax and benefit returns, the following information may interest you.

Readers beware – the taxman will come to your door. The answer is found in being prepared ahead of time.

I just received a letter from you. What is it all about? Did I do something wrong?

The CRA has sent you this letter to educate you about certain claims you made on your recent income tax and benefit returns. This letter also gives you the opportunity to request an adjustment if you find that you claimed some items incorrectly on past tax returns. Some of the letters that the CRA is sending will also notify taxpayers that the CRA may conduct audits in their industry sector.

This letter does not mean that the tax returns you filed in the past were incorrect. Like 90% of Canadians, you probably filed an error-free return and paid your taxes on time. You do not need to respond to this letter if your past tax return filings are correct.

The information in this letter will also be useful to you when you prepare to file your next income tax and benefit return.

I paid a professional tax preparer to do my tax returns. Did he or she do something wrong?

Although a professional tax preparer completed your return, the CRA has sent this letter to you because you are most likely the person responsible for carrying on your rental and/or business activities. In most cases, tax preparers use information provided by taxpayers to prepare the taxpayers’ returns.

The CRA regularly identifies the most common errors on income tax and benefit returns in an effort to determine areas that require clarification. You have claimed deductions that often lead to common errors. This letter provides you with information about these errors.

This information will make it easier for you and your tax preparer to comply with Canada’s tax laws. It will also help you and your tax preparer to verify your most recent tax returns to ensure they were correct when you filed them.

What am I supposed to do as a result of this letter?

Please review your income tax and benefit returns and ensure that your income and deductions have been reported correctly. If you find any errors, you can correct your return(s) by requesting an adjustment.

If you determine that the claims you made on your return(s) are accurate, you do not need to take any action.

Do I have to send any documents to the CRA? If so, when do I send them and where?

If you determine that the claims you made on your income tax and benefit returns are accurate, you do not need to send any documents to the CRA.

If you would like to adjust one or more tax returns because you have found errors, you will need to submit a request for an adjustment. We recommend submitting your request within 30 days from the date of this letter to minimize the interest charged on any outstanding amounts.

If the CRA decides to audit you, we will not take any audit action before the 30 days have elapsed. If the CRA starts an audit before you file your adjustment, you will be invited to give the auditor all relevant information regarding the adjustment.

To request an adjustment, complete Form T1-ADJ. You can also request this form by calling 1-800-959-2221 or by ordering it online.

Instructions on how to complete Form T1-ADJ are on page 2 of the form, along with the CRA return mailing address. To access our electronic services and make changes to your return online, login to My Account and follow the steps given.

Do not send a completed Form T1-ADJ, or any other documents, to the author of the letter.

What do I do if I find errors on my tax returns? Do I also have to correct my provincial return? (Quebec residents only)

If you would like to adjust your tax return because you have found errors, you will need to submit a request for an adjustment. You may want to submit your request within 30 days from the date of this letter to reduce the interest charges on any outstanding amounts. If the CRA decides to audit you, we will not take any audit action before the 30 days have elapsed.

If the CRA starts an audit before you file your adjustment, you will be invited to give the auditor all relevant information regarding the adjustment.

To request an adjustment, complete Form T1-ADJ. You can also request this form by calling 1-800-959-2221 or by ordering it online.

Instructions on how to complete Form T1-ADJ are on page 2 of the form, along with the CRA’s return mailing address. To access our electronic services and make changes to your return online, login to My Account and follow the steps given. Do not send a completed Form T1-ADJ, or any other documents, to the author of the letter.

Do not send a completed Form T1-ADJ, or any other documents, to the author of the letter.

If you are a resident of Quebec and you have questions related to your provincial tax return, please contact Revenu Québec directly.

How much tax will I have to pay if I file this adjustment? What happens if I cannot afford to pay the resulting tax liability right away?

The CRA cannot accurately estimate the amount of tax that you may have to pay as a result of your request for an adjustment. You will receive a notice of reassessment or a statement of account/remittance showing any amount owing as a result of your adjustment.

Any amount you owe must be paid in full once you receive your notice of assessment or reassessment to avoid paying additional interest.

If you cannot pay the total amount owing immediately, please call the telephone number on your notice of assessment or reassessment to discuss your options.

For information about payment options, go to Making payments or call the telephone number on your notice of assessment or reassessment.

Your letter mentions that the CRA is considering conducting an audit of my business, rental, or professional activities. What are the chances that I will be audited, and when will the audit take place? What tax years will the CRA audit?

Receiving this letter does not necessarily mean that you will be selected for an audit. The CRA is not in a position to indicate the likelihood of being selected for audit for a number of reasons. The CRA considers risk from a number of criteria before selecting files for audit.

If it is determined that an audit is required, it will commence only after the upcoming filing season, to give you an opportunity to self-assess your returns using the information provided in the letter.

However, the Income Tax Act allows the CRA to adjust tax returns:

  1. in the three years following the date on your notice of assessment. For example, if your 2009 tax return was filed on April 15, 2010, and your 2009 notice of assessment is dated May 28, 2010, the CRA can reassess your 2009 tax return until May 28, 2013 (May 28, 2010 + 3 years).
  2. for any years that the taxpayer or person filing the return has made any misrepresentation that is attributable to neglect, carelessness, or wilful default or has committed any fraud in filing a return or in supplying information under the Income Tax Act.

Why is the CRA targeting specific sectors of activity? What is the rationale behind its selection criteria? Is this not discrimination?

The CRA reviews groups of taxpayers to determine how many of them are paying their taxes in full and on time. If the review shows that there are many who are not compliant, the CRA may audit taxpayers within this segment.

Is the CRA trying to intimidate taxpayers?

The CRA wants to give you the opportunity to request an adjustment, which you can do if you find that, in any past tax return filings, items were incorrectly claimed.

Why have you sent me a letter and not my associates/partners?

Letter recipients were chosen at random within your industry segment.

I received (or my associate or my spouse received) the same kind of letter from the CRA last year. Why is the CRA sending me another letter?

Letter recipients were chosen at random within your industry segment.

How does the CRA define potential risk within the scope of this compliance letter campaign?

To direct letters to the taxpayer groups potentially at risk of non compliance, the CRA relies on risk-assessment systems to determine which taxpayers or industry sectors are at risk of misunderstanding their tax obligations or willfully evading paying their taxes. This includes research to identify current and emerging risks to the tax base.

Your letter mentions that there is a Voluntary Disclosures Program (VDP). What is the difference between a voluntary disclosure and a request for adjustment using Form T1-ADJ? Where can I find more information about the VDP?

Generally, taxpayers make adjustments to previously filed tax returns using Form T1-ADJ, T1 Adjustment Request. This form allows you to modify any amounts claimed or income reported on any line of your tax return or schedules, and the modifications may result in either a refund or an amount owing.

To request an adjustment, complete Form T1-ADJ. You can also request this form by calling 1-800-959-2221 or by ordering it online.

You can use the VDP to correct inaccurate or incomplete tax information and/or to disclose information that was not previously reported to the CRA.

You will not be penalized or prosecuted if you make a valid disclosure before you become aware of any compliance action taken against you by the CRA. If you make a valid voluntary disclosure, you will only have to pay the taxes owing, plus interest. You will not be subject to prosecution or penalties. For more information about the VDP, or to find the appropriate tax services office, go to Voluntary Disclosures Program.

I would like more information on business, professional, or rental activities. Where can I find it?

If you need additional information, call the author of the letter. You can also call our Individual income tax inquiries line at 1-800-959-8281.

Share this post