Tax Review in Canada: Here’s what you should know

tax review

Tax review is not an audit, but when Canada Revenue Authority (CRA) selects a business for tax review, it’s a serious issue. Here are the facts you need to know. 

After filing taxes, most Canadians check their mailboxes, hoping to be greeted with the cash owed to them by the federal government in accordance with their income tax returns. Quite a number of taxpayers get disappointed to see a pressing letter from the Canada Revenue Agency explaining their taxes are currently under review. This process is daunting, particularly if you are asked to submit documentation within a specific time frame. 

But it’s okay. 

The tax review process is easier than most Canadians think. It helps confirm that the income amounts, tax credits, and deductions are correctly reported and can be supported properly. 

If you get a letter from the CRA informing you that your tax return is being reviewed, do not panic. Reviews are not audits. Instead, they are simply routine checks to make sure that the tax-related information you provided is correct. 

It is imperative that you respond and send the requested documents as soon as possible. A timely response will help CRA review your tax file efficiently and quickly. If you need help, you can contact the CRA or the tax professionals at PersonalBanker. They will help you address all relevant questions and concerns. Remember, it is possible to get in touch with the CRA personnel handling your tax file directly. 

Why is your tax file being reviewed?

The Canada Revenue Agency takes many factors into account when selecting taxpayers to review. Some of these factors include your previous experience with the tax agency (if any), the kind of tax credits and deductions you have claimed on your returns, and more. 

Additionally, taxpayers can be picked randomly to comply with a tax review process. According to the federal government, the primary objective of these reviews is to ensure that the amount reported is correct and can be supported properly. It’s a fact-checking process rather than an indication a taxpayer has done anything nefarious regarding their income tax return. 

Your income tax return and benefits return may be picked for review for several reasons. These include; 

  • Your income tax compliance history
  • The details on your tax return do not match the information from third-party sources like T4 slips
  • The specific type of tax credits and deductions you claimed on your income tax return
  • Random selection

Keep in mind that the process of picking tax returns for review is the same, whether you find your returns online (NETFILE or EFILE) or on paper. The CRA refines the focus of their reviews annually based on various review results and identified areas involving and compliance.

The CRA processes most tax returns without conducting manual reviews of the tax information reported so that notice of assessments can be released within a short period. Note that all tax returns are screened by the tax agency’s computerized system and might be subject to tax review at a later date. 

This is the main reason you should keep your tax records or documents, including all receipts and other relevant documents, to support your benefit claims for six years. These documents will be helpful in case your income tax return is selected for review. Remember, the CRA can ask for various documents that prove you paid your rental property taxes, municipal property taxes, municipal taxes, and more. You may be asked to provide receipts such as bank statements or cancelled cheques as proof of any credit or deduction you claimed. 

Can’t find the documents requested by CRA?

tax review

As mentioned earlier, the CRA may ask for receipts or documents during the tax review process. If you cannot find these documents, don’t panic. Contact the CRA, and you will be advised what you should do. Alternatively, consult with the tax professionals at PersonalBanker, and we will help you find an alternative. 

Suppose you are running late and cannot find the documents requested by the CRA. In that case, it’s recommended to call the tax agency right away and request more time. Alternatively, you can let an experienced tax professional from PersonalBanker handle all your tax-related documentation and filing on time. 

Can you ignore a tax review?

Ignoring a tax review is a really bad idea. 

If you’re asked to submit more information about your income taxes, ensure you do so within the period (often 30 days after the initial contact) given by the CRA. Otherwise, the CRA will alter your claim to match the specific amount available on your file. For many people in Canada, that means they will be collecting less refund than expected. 

Hire a tax professional 

If you own or run a business or have a complex tax profile, hire a tax professional to address your tax filing and documentation. Tax reviews can prevent tax audits. The opposite is true, particularly if the CRA is dissatisfied with the income tax information you provided and suspects fraud. If the CRA suspects malfeasance, there is a good chance you will move from being reviewed to tax auditing, which is a more worrisome situation. 

So, don’t take any chances. Take the safest route and work with a tax professional to ensure your tax-related files are correctly kept and up-to-date. 

Watch out for notices and tax review letters from CRA 

The CRA will send some important tax review letters and notices to you. So, watch your mail, online mail on My Account, and email. Make sure you are getting all notices, letters, and other correspondences regarding your taxes. If you change your address or move, be sure to keep your information up-to-date. 

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