Due on a deadline and under threat of being fined, it is neither fun nor easy to prepare your business or personal tax return. As if this is not stressful enough, it is truly nerve wracking to receive a letter from the Canada Revenue Agency soon after filing the return. It is unnerving because you just don’t know what it is that CRA is writing to you about. Well, what follows is to help you understand the types of letters the CRA sends to taxpayers and what each of them means.

Essentially there are 4 classes of communication that you are likely to receive from the CRA with respect to your tax return as follows:

Notice

When you file a tax return, you always receive a Notice of Assessment. A Notice of Assessment (NOA) is an annual statement sent by the Canada Revenue Agency (CRA) to taxpayers showing, among other things, the amount of income taxes owing, if any. As such, receiving a NOA shouldn’t worry you as it is, in most cases, a confirmation that your return on the initial review has been accepted by the CRA. However, Receiving a Notice of Assessment doesn’t mean that the CRA is done looking at your tax return. Actually the CRA can go back three years, or more and review or audit your return. In fact, if there is suspicion of fraud, the CRA can go back further than the three-year period.  For this reason, it’s important that you keep your CRA Notice of Assessment as well as any other applicable tax documents. These will be needed if the CRA decides to audit you and reassess your tax return. 

There is another “Notice” that you may receive from the CRA with respect to your tax return. As previously mentioned the CRA has the right to go back and reassess any of your last three prior year’s tax returns. If this happens, you will receive a Notice of Reassessment. This will replace the Notice of Assessment that you originally received. This document will state the reasons for the reassessment.

There are several types of communication that fall under the umbrella term “notice”. Such communication, none which should particularly alarm you include:

1. 1. Canada child benefit notice
      You receive a Canada Child Benefit notice (CCB) because you have applied for the CCB, or you were already getting the Canada Child Tax Benefit or the universal child care benefit.
   2. GST/HST credit notice
      You receive a Goods and services tax/Harmonized sales tax (GST/HST) credit notice because you filed a tax return, and the information on your return was used to calculate the credit.
   3. T2 Corporation Notice of Assessment
      A Corporation Notice of Assessment is issued when a corporate tax return is filed.
   4. Goods and Services Tax/ Harmonized Sales Tax (GST/HST) Notice
      The Goods and Services Tax/Harmonized Sales Tax Notice of Assessment (GST/HST) is issued when a GST/HST return is filed.
   5. T3 Trust Notice of Assessment
      You receive a T3 Trust Notice of Assessment when you file a T3 Trust Income Tax and Information Return.

Reviews

If you receive a letter from the Canada Revenue Agency (CRA) telling you that your income tax return is being reviewed, don’t panic. A review is not a tax audit. In most cases, it’s simply a routine check to ensure that the information you provided on your return is correct. Remember that reviewing tax returns is a routine process at the CRA. In fact, the CRA reviews about 3 million income tax returns every year to make sure income amounts, deductions, and credits are reported correctly, and can be properly supported.

Audits

The word audit strikes fear into the hearts of taxpayers—probably because it is perceived that the government with its immense authority can force them to unfairly pay more in taxes. The reality is totally different. The CRA administers the tax laws for the Government of Canada and for most of provinces and territories. The CRA also delivers various benefits and credit programs to Canadians through the taxation system.

Now, considering that Canada’s taxation system is based on the self-assessment principle, to enforce the taxation laws, the CRA must ensure that taxpayers are reporting and paying taxes based on their true taxable income. Accordingly, the CRA conducts audits where based on certain criteria it selects a number of tax returns to specifically verify that reported amounts are legitimate and can be supported through records.

The audit process begins when the CRA advises you by letter that you have been selected for an audit and specifies the scope of the audit. You may be asked to submit some or all of your receipts or records for whatever area they are auditing, or maybe they’ll ask for a whole list of items for you to send to them.

The truth is that unless there is a serious discrepancy or blunder on your tax return, audits are rare. The CRA selects business accounts to audit based on several factors which could include how the information they have on file relates to your tax returns, potential tax-return errors, or signs of non-compliance. If you’ve been audited, a CRA tax auditor will contact you to begin the investigation that usually happens in your place of business. A more detailed description of the audit selection process can be found on the CRA’s website here.

There’s a reason that everybody hates to be audited. Tax audits can be long, arduous, and costly affairs, which is why it’s so important to keep detailed records of all your financial transactions and to consult the professionals for your year-end tax return preparation.

Disclaimer
All content provided on this blog is for information purposes only. Master Accountants does not in any way whatsoever, guarantee , warrant or otherwise make any representation as to the accuracy, completeness, or usefulness of any of the information contained in this blog regardless of how the reader obtained access to it. Master Accountants will not be held liable for any errors or omission in the information presented nor for any loss that may result from the application of this information. The reader is strongly advised to consult his or her professional accountant and NOT to rely on this information.