1. Pre-Processing and Post Processing Reviews
The Canada Revenue Agency (“CRA”) may ask for supporting documents after you have submitted your personal and/or business tax returns. These requests may come in the form of a Pre-Processing Review or a Post Processing Review. These requests typically tell you what they need to see, but only in a very general way; there is a lot of boilerplate text which may or may not apply to you.
These requests are not “audits”, which are rare and reserved for situations where the CRA suspects tax avoidance or tax evasion.
The CRA puts a target deadline for receiving the needed documentation within 30 days of the date of their letter. Therefore, you should respond quickly. We can provide guidance for these responses or prepare them on your behalf, if you give us the needed documents.
2. Paper vs digital
While paper documents were preferred by the CRA for many years, they have since opened up the opportunity to submit documents through their website, which means they will accept digital copies. Please refer to the following CRA article
We recommend digitizing all tax documents:
a. they can be stored more easily on your computer hard drive or in cloud storage. You are required to keep all documents for a minimum of 7 years
b. you can access them more easily, provided that you took the trouble to organize the files when digitizing the documents
c. there is little to no risk of losing the documents due to fading thermal receipts, or packing them in a box that cannot be found later, or just losing them in a move, for example
We recommend digitizing the documents using one or more of the following procedures:
- Using a dedicated scanner, such as a Fujistu Scansnap, or Epson Workforce
- Using the scanning feature on your multi-function printer
- Taking pictures of each document with your smart phone
- Scanning the documents using scanning apps available for iPhones and Android smartphones
- Using dedicated software such as Receipt Bank or HubDoc, which can export the receipt and its information to online accounting packages, as referred to in the next point
- Using the features within the various online accounting software to organize and even total the receipts . Online accounting software includes QuickBooks Online, Xero, Sage One and others
3. Make sure that the receipts add up to the same total expenditures as claimed in your tax return
We recommend creating a list of the expenditures and then calculating the totals for each category. This makes it easier for the CRA to reconcile the totals with your original tax return submission
If the totals differ, then prepare a T1-ADJ to explain the differences, and the implications for the amount of tax owing or refund. Focused Tax Services is available to do this for you, for a fee
4. Create a cover letter to explain what you are submitting and how it conforms with the CRA request letter
It is always a good idea to create a cover letter to confirm that you are responding to a particular request. The CRA’s letter has a reference number, which you should point out in your response. Please consider asking them to review the documents you have submitted and update their records. It never hurts to specifically request that the CRA not levy late filing penalties or assess interest on any remaining liability
5. It takes time for the CRA to respond
The CRA says on their website that it will take 2 weeks to respond to submissions made through the CRA website, and up to eight weeks for submissions that are mailed. However, in our experience, some submissions can take up to a year to receive a response. So, don’t expect an immediate response
If you have already been re-assessed and received a notice that you owe money, then it is possible to make a formal request to reduce and/or eliminate penalties and interest on those liabilities, pending the CRA’s review of your submission. You could file a Notice of Objection or an application for Taxpayer Relief, both of which should be presented with your submission of supporting documents in your response to the CRA request.
If the CRA agrees that your documentation supports your claim, they will send back a letter saying so. If they haven’t already re-assessed your tax return they will state that no changes are necessary. If they have sent you a re-assessment, then they will re-assess the tax return and send you the updated results. If the original re-assessment included penalties and interest, then part or all of those extra amounts will automatically be reversed.
6. Don’t delay in responding
Many of our clients receive requests that they don’t understand or choose to ignore because they don’t understand what is being requested. If you receive any letters from the CRA, please feel free to contact Focused Tax Services to see what is going on. We will request a scanned copy of the letter and guide you on how to respond, or we can respond on your behalf if you have authorized us as your representative.
Don’t despair if more than 30 days have passed. In our experience, there is up to 90 days to respond, and perhaps more. Please refer to the following article on the CRA website to see how an objection and/or appeal can be made.