Canada Revenue Agency Reviews

The Canada Revenue Agency reviews and checks your personal tax returns routinely, as part of the processing process. The CRA calls it the pre-assessment or processing review. This article will describe the reasons why the reviews are done, what the routine review inquiries are, and what you can do to satisfy the requirements and appease the CRA.  

Basics – CRA Reviews

The Canada Revenue Agency reviews are an opportunity for the CRA to diligently and thoroughly review some deductions and tax credits (explanation of ‘deductions’ and ‘tax credits’ is below) claimed by individuals. In the review process, the CRA will ask you to provide further documentation to support the tax credit and/or deduction you claimed. This normally occurs within 2 – 4 weeks receiving your return.

If you have claimed tax credits and/or deductions that are rarely claimed, have stringent criteria, and/or are often misused, then the CRA will ask for more documentation from you to support it. The CRA reviews are done on electronically-submitted returns, because you can’t really send the supporting documents for deductions and/or credits at the time you file them electronically; which is why you are called upon to send the documents now.

Specific Inquiries

The CRA reviews deductions and tax credits that are tough to get, as described above, because they want to determine the legitimacy of the claim. Just to define the terms:

– A deduction is an expense on the tax return, which directly reduces the taxable income. The tax you pay (i.e. taxes payable) is calculated on the taxable income. Some examples of deductions that are often reviewed are:

• Spousal support payments
• Stock options
• Child care expenses
• Union dues
• Moving expenses

– A tax credit directly reduces the taxes payable. Some examples of tax credits that are often reviewed are:

• The child amount
• Eligible dependant
• Caregiver amount
• Tuition amount
• Public transit

The above list isn’t exhaustive, and it doesn’t mean that the CRA reviews cannot be done for other deductions/credits.

The CRA will send you or your accountant a letter describing the nature of their review. They will tell you exactly which deduction/credit they are reviewing. The CRA provides a code beside each item, which you can look-up on the CRA website, which will tell you exactly what you need to submit to fulfill their requirements.

Satisfy the CRA

Once you enter the code into the CRA website, you are shown a page that is devoted exclusively to this review process. You will be shown exactly what you need to provide to the CRA to appease them and satisfy the requirements. You do NOT have to submit each item that appears on the page, just the basic things that will provide enough support. The CRA review is not an audit, so you do not need to treat it as such. Below are some examples of what you can send to the CRA.

If items like public transit and union dues are being reviewed, then simply submit their receipts. If spousal support payment is being reviewed, then submit a legal separation agreement that stipulates the support payment amounts, and your bank statements showing the amounts being paid. If child care expenses are being reviewed, then submit the special child care form (T778); receipts; and information relating to the child(ren).

When submitting documents to the CRA, the question you should ask yourself is, what is the most basic documentation that I can provide that will prove the legitimacy of the claim(s)?

For additional tax tips, please also read Best Tax Tips.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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