Is CRA Targeting Your Recent Filings?

Posted by on Jan 28, 2013 in News Updates | 0 comments

CRA-logo2[1]This is one of the articles that I receive periodically from Ledgers Canada (www.ledgers.com), and I thought it might be informative for Canadian tax filers.

In 2010, CRA started a letter campaign with the purpose of educating individuals about their tax obligations and to encourage taxpayers to correct errors or inaccuracies in prior year tax returns. Well, they are back.

Beginning in January 2013, CRA will send approximately 33,000 of these letters to persons that have any of the following items on their personal tax return for 2011:

• Self-Employment Income

• Rental Income

• Employment Expenses

CRA has determined that people in these groups may be at risk of noncompliance with the tax legislation and, are therefore targeting these individuals for reviews. You could be selected to receive one of these letters if you prepared your taxes yourself or even if you used a tax preparation service. If you do receive one of these letters, it does not necessarily mean that you will be audited; however, you could be audited if CRA determines your tax return contains questionable items.

What is questionable?

When CRA looks at a tax return, they look for anomalies; items that may not be reasonable in relation to tax returns filed by others in the same industry (in the case of self-employment income), unusual expenses in the case of rental income, or significantly high employment expenses for those making that claim.

For Self-employment and employment expenses, one of the most common items to be reviewed is vehicle expense claims. If you receive one of these letters, the first thing you should do is contact your local Ledgers Professional, do not, under any circumstances contact CRA before getting professional advice; many see these letters as a ‘fishing’ expedition on the part of CRA and they are trying to intimidate selected taxpayers to incriminate themselves.

When you receive one of these letters, CRA gives you 45 days to file adjustments to previous year’s tax returns by filing a T1 Adjustment Request. This letter campaign is part of the Voluntary Disclosure Program. This program allows taxpayers to correct inaccurate or incomplete information that they may have previously reported, without the risk of penalty or prosecution.

Disclosures may be made for Personal Income Tax, GST/HST or a couple of other lesser known taxes.

To make a valid disclosure under the program, the application must meet four conditions:

 1.      The disclosure must be voluntary

2.      The disclosure must be complete

3.      The disclosure involves the application or potential application of a penalty.

4.      The disclosure relates to information that is one year or more overdue.

If CRA accepts the disclosure application as filed, the taxpayer will not be penalized, but will have to pay any taxes due as a result of the disclosure plus applicable interest.

As with most CRA programs, if they fail to accept your disclosure as filed, there is an appeals process that allows you to have your case reviewed at a higher level. This program, taken at face value seems pretty good… it allows a taxpayer to make amends for prior oversights and / or errors.

However, if you look at it in depth, could you possibly be opening a ‘can of worms’ by reporting your errors to CRA?

If you tell them that you have made errors in the past, are they more likely to pay closer attention to you in the future? Could your disclosure prompt an audit or further review? These are questions that are best discussed with your tax preparation professional if you receive a letter of this nature.

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