For many of us tax preparers, tax season never really ends. It’s a year-round gig, that keeps our hamster wheels spinning! Have you ever wondered what happens on the CRA side of things when the magical filing date passes? The Canada Revenue Agency switches gears from processing, to auditing of course! There is even a special division in the CRA created just for this, known as the T1 Processing Review Centre. There are usually two different types of tax audits: pre-assessment and post-assessment.
During tax season, many lucky taxpayers will have been issued pre-assessment notifications upon filing their taxes. These will usually pop up upon netfiling their taxes for the year with a blurb stating a request will be issued for review of the income tax in the form of a letter. These pre-assessments can be for a number of things such as support payment or business income confirmation. Basically, anything that is usually self-reported, and the CRA is more or less looking for confirmation that the amounts are true. A letter will be sent via Canada Post, or electronically through My Account if registered, and will state what particular part of your return is under examination. The letter usually comes with a code to be used on the CRA website, which will list acceptable forms of confirmation for the amounts in question. These assessments are issued prior to the income tax being processed and can usually hold up the refund or balance owing until the assessment is complete.
The silver-lining to these types of tax audits are the fact the funds usually have not been released to the taxpayer. Therefore, if there are any ‘changes’ made, they are known and accounted for before money exchanges hands. Like most things in the world today, these are usually computer generated. Therefore, until the information is submitted to the T1 Processing Review Centre, no human has actually reviewed your income tax. This can explain why some of the requested may seem completely obvious to you (ex. Claiming the same child you’ve claimed for 15 years plus as dependant), however, you still need to submit the requested information or the auditing division can disallow and revert your claim due to lack of response.
Now, once the current tax season has come to an end, the review centre switches gears, usually by the fall, and starts to issue post-assessments. As the name suggest, these assessments come after the income tax has been released. Again, the CRA will be asking for further proof of various claims being made on your income tax return. This letter will be sent the same way as stated above; Canada Post or electronically. These types of assessments are better to be dealt with sooner than later (typically a 30 day deadline), as usually money has already exchanged hands. You could have been issued a refund, however, if you fail to produce satisfactory documentation to the review center for a given tax claim, the CRA can disallow your claim and come looking not only for their funds back, but also charge you interest to boot!
So, as you can see, us as tax preparers and yourselves as taxpayers, never really get a break. Its literally a vicious cycle of preparing, filing, reviewing, amending, and submitting returns to the CRA continuously! Also keep in mind, if you are not satisfied with the outcome of a tax audit you can appeal the decision through the proper channels…that however is another topic for another day!
~ Natasha McDonald ~