By May 23, 2016, the Canada Revenue Agency (CRA) had processed just under 26 million individual income tax returns filed for the 2015 tax year. Of those returns, 56% resulted in a refund to the taxpayer, 18% required payment of a tax balance by the taxpayer and just over 20% were “nil” returns – returns where no tax is owing and no refund claimed, but the taxpayer is filing in order to provide income information which will be used to determine his or her eligibility for tax credit payments (such as the Canada Child Tax Benefit or the HST credit ).
No matter what the outcome of the filing, all returns filed with, and processed by, the CRA have one thing in common – they all result in the issuance of a Notice of Assessment (NOA), outlining the taxpayer’s income, deductions, credits, and tax payable for the 2015 tax year.
The NOA issued by the CRA has undergone significant revisions, with the goal of making the provided information easier to understand. Consequently, the 2015 NOA will look very different than the one received last year.
The first page of the revised NOA will explain whether the taxpayer will be receiving a refund or whether he or she has a balance owing and, in either case, the amount involved. The same information will appear in a box at the bottom of page 1, entitled Account Summary.
On page 2 of the NOA, the CRA lists the most important figures resulting from their assessment, including the taxpayer’s total income, net income, taxable income, total federal and provincial non-refundable tax credits, total income tax payable, total income tax withheld at source, and the amount of any refund or balance owing.
Page 3 of the NOA includes an explanation of any changes made by the CRA to the taxpayer’s return during the assessment process and provides information on unused credits which the taxpayer may have from prior years and which can be carried out and claimed in future years.
On page 4 of the NOA the taxpayer will find information on his or her total RRSP contribution room (i.e., maximum allowable RRSP contribution) for 2016.
Finally, page 5 provides information on how to contact the CRA with questions about the information provided on the NOA, on how to change the return filed, and on how to dispute the CRA’s assessment of the individual’s tax liability.
In most cases, the information contained in the NOA is the same as that provided by the taxpayer in his or her return, perhaps with a few arithmetical corrections made by the CRA. In a minority of cases, the information presented in the NOA will differ from that provided by the taxpayer in his or her return. Where that difference means an unanticipated refund, or a refund larger than the one expected, it’s a happy day for the taxpayer. In some cases, however, the NOA will inform the taxpayer that additional amounts are owed to the CRA.
When that happens, the taxpayer has to figure out why, and decide whether or not to dispute the CRA’s conclusions. Many such discrepancies are the result of an error made by the taxpayer in completing the return. A lot of information, from a variety of sources, is reported on even the most straightforward of returns and it’s easy to overlook, for instance, a T5 slip reporting less than ten dollars in interest income earned.
Even when tax software is used to prepare the return, errors can still occur. Such tax software relies, in the first instance, on information inputed by the user with respect to the amounts found on T4, T5, and other information slips. No matter how good the software, it can’t account for income information which the taxpayer hasn’t provided.
In other cases, the taxpayer might transpose figures when entering them, such that an income amount of $26,353 on the T4 becomes $23,653 on the tax return. Once again, the tax software has no way of knowing that the information input was incorrect, and calculates tax owing on the basis of the figures provided.
Where there is additional tax owing because of an error or omission made by the taxpayer in completing the return, and the CRA’s figures are correct, disputing the assessment doesn’t really make sense. There is, as well, a persistent tax “myth” that if a taxpayer doesn’t receive an information slip (T4 or T5, as the case might be) for income received during the year, that income doesn’t have to be reported and therefore isn’t taxable.
The myth, however, is just that. All taxpayers are responsible for reporting all income received and paying tax on that income, and the fact that an information slip was lost or never received doesn’t change anything. The CRA receives a copy of all information slips issued to Canadian taxpayers, and its systems will cross-check to ensure that all income is accurately reported.
There are, however, instances in which the CRA and the taxpayer are in disagreement over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s claim for a medical expense, or for a deduction claimed for a business expenditure, which the taxpayer believes to be legitimate. When that happens, the taxpayer has to decide whether to dispute the assessment.
Before making that decision, the first step is always to contact the CRA for an explanation of the reasons why the change was made. While the information provided in the NOA is a good summary of the taxpayer’s tax situation for the year, it may not always be clear on precisely why the taxpayer and the Agency disagree on the actual amount of income tax which the taxpayer must pay for the year.
It is no longer possible to have a face-to-face meeting with a CRA representative at a Tax Services Office (TSO) to obtain such information, as in-person services were discontinued a few years ago. Taxpayers who want more information about their NOA must now call or write to the CRA. The first step to be taken would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281. If that call doesn’t resolve the taxpayer’s questions, he or she can write to or fax the Tax Centre which processed their return. The name of that Tax Centre can be found in the top right hand corner of the first page of the NOA, and fax numbers and mailing addresses for the Tax Centres are available on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html. Communication with a Tax Centre can only be done by fax or mail, as phone numbers for Tax Centres are not available to the public.
If the situation still isn’t resolved by these communications with the CRA, and no matter what the basis for the disagreement is — a disallowed deduction or a dispute over the amount of income for the year — the next step is the filing by the taxpayer of a Notice of Objection. The steps involved in doing so will be outlined in the July 2016 issue of this newsletter.
