Tax Debt and Collections

After a taxpayer files an income tax return, the CRA may follow up with a request for more information as part of a pre-assessment review. Pre-assessment reviews usually ask for more information about the deductions or credits that were claimed.

Following a review of a taxpayer’s tax return, the CRA will issue a Notice of Assessment, which will provide information about how much the taxpayer owes in taxes or how much refund a taxpayer is entitled to.

A Notice of Assessment will provide the following information:

• Refund or balanced owing
• Total Household Income
• Corrections if any to your GST/HST rebate application
• Your RRSP deduction limit, representing the maximum amount that you can contribute to your RRSP.
• Repayment required if you benefited from the Home Buyer’s Plan tax deduction and withdrawn money from your RRSP
• Tuition, education and textbook carry forward amounts if you are a student and did not use the full tuition, education, and textbook deductions.
• Unused net Capital Losses, which can be carried back three years or carried forward indefinitely to be applied against your capital gains
• TFSA contributions, withdrawals, and any unused contribution room that you have in your tax free savings account.

If you realized that you filed your tax return incorrectly, you can file a T1 adjustment. It may take several months before your T1 adjustment is processed. An adjustment request allows you to amend any errors or omissions that you may have made on your tax return.

If you disputed your Notice of Assessment and filed a Notice of Objection, it can take several months for an appeals officer to be assigned to your case.

If you were successful in filing a Notice of Objection, in which you disputed the CRA’s conclusions with respect to its initial Notice of Assessment, the CRA will issue a Notice of Reassessment, reflecting its new conclusions with respect to your tax obligations and possible refund. If the CRA disagrees with your objection, as outlined in your Notice of Objection, it will send you confirmation of the original Notice of Assessment.

A Notice of Reassessment can also be generated as part of a random review particularly when the CRA suspects fraud. In that case, the CRA may go back three years or more to ask for more information. Your income tax and benefit return may be selected for review for a number of reasons, including

• Your compliance history;
• The types of deductions you claimed
• The information on your return does not match information from third party sources such as T4slips.

If you continue to disagree with the CRA’s Notice of Reassessment, you have a right of appeal to the Tax Court of Canada, which must be filed within 90 days from the date of the CRA’s decision.

While a request for information is often mistaken for an audit, it is not. It is simply a request by the CRA for more information about something you included in your tax return. Common information requests are for items such as home office expense claims, medical expenses, and tuition receipts.

You can apply for the Voluntary Disclosure Program if you haven’t yet been contacted by the CRA requesting for more information regarding the income that was not reported. 

The Voluntary Disclosures Program (VDP) gives you a second chance to change an incorrect tax return you previously filed, or to file a return that you failed to file. The Voluntary Disclosure Program allows you to apply to the CRA to ask for relief of prosecution, interest, and penalties relating to your omission.

Essentially, the program allows you to come forward on your own to inform the CRA that you may have omitted income in your previous return or you may have omitted that you own foreign property or assets, without being levied with severe penalties

To qualify for relief, the application must be voluntary and be complete. Under the new VDP rules effective March 1, 2018, the disclosure must also accompany payment of the estimated tax owing. By “voluntary,” the CRA must not have contacted you regarding the improper filing or failure to disclose. The moment you receive a letter or call from the CRA regarding your failure to file correctly, you are disqualified from the program.

A taxpayer can apply for taxpayer relief from penalties and interest on taxes that are owed if there are extenuating or exceptional circumstances that hindered the taxpayer from paying his/her taxes.

The CRA will look at the following conditions for eligibility:

• CRA action or inaction: Was the reason for not filing due to an error or inaction by the CRA? For example, if a spouse has passed away with tax debt, and the CRA has failed to notify the surviving spouse about the tax debt, this constitutes CRA inaction.
• Financial inability to pay—if a taxpayer has closed his/her business and cannot pay his tax obligations, he may qualify for the Taxpayer Relief Program
• Extraordinary Circumstances, such a fire, flood, illness, or death in the family.

Form RC4288, Request for Taxpayer Relief, must be sent to a Canada Revenue Agency Tax Centre, and the exact tax services office depends on where the taxpayer resides. Taxpayers may submit their request to have interest or penalties waived or cancelled in writing with the tax center or tax services office where the tax return was filed or by filling out Form RC4288, Request for Taxpayer Relief, which can be found at www.cra-arc.gc.ca/formspubs/menu-eng.html or requested at toll-free 1-800-959-2221. Any written request must explain the situation and circumstances surrounding the taxpayer’s inability to pay and this claim must be backed up with supporting documents.