No one enjoys receiving letters from the Canada Revenue Agency, but sometimes panic is not the answer.
The Canada Revenue Agency (CRA) regularly conducts what they call ‘Process Reviews’ of tax claims. They are fairly common, and they often freak people right out. However, these are very, very far from audits, and usually more accurately can be called ‘spot checks.’
Canadians don’t always notice, but much of our income tax filing essentially works on the honour system. Because most returns are transmitted electronically, without any detailed schedules or receipts being sent in, CRA receives only a skeleton form of your tax return, containing only the barest amount of information required to move money around.
Consequently, to keep everyone playing fair, they conduct spot checks from time to time on regularly-claimed credits, and sometimes they do the same when a number seems out of line (e.g., a previously healthy 30-year-old taxpayer suddenly claiming $4,000 in medical expenses).
Here at Personal Tax Advisors our advice regarding CRA’s letters is constant: don’t panic; do read them (or bring them to us and we’ll read them for you).
The letters they send are long, and like most letters from CRA, people worry they’re in trouble. The length intimidates them, and they proceed to do the worst possible thing: they don’t read them.
As when a woman dressed as Batman (Adam West era) approaches you in the street*, consider the possibility that someone slightly crazy may actually be trying to be helpful!
The length of the letter is usually due to the huge amount of detail CRA sends out to inform the reader of what materials they need, and what other materials they could accept if you don’t have those materials, and what they might also take if you don’t have the materials they would accept if you don’t have the first materials.
Here are a few shortcuts for the most common kind of Process Reviews:
If they are reviewing your Application for Ontario Energy and Property Tax Benefit (aka the Trillium Benefit, which is based on property tax or rent paid in Ontario during the year):
They will need a copy of ONBEN (the application in your tax return that actually applies for the credit); plus some proof of the amount of property tax or rent you’ve paid, e.g. cancelled cheques, a receipt from your landlord, or your paid property tax bill with the teller’s stamp from the bank.
If they are reviewing your Medical Expenses:
They will need the medical receipts that make up your claim. You can also make things easier for them by including a summary showing the date of payment, name of patient, type of service/device you paid for, and the amount.
If they are reviewing your Education Credits:
They will need a copy of the education schedules from your return: Schedule 11 and Provincial Schedule 11; and the T2202 slip from your school (or TL11A, B, C, or D, if you went to a school outside Canada).
If you don’t have any of these forms of proof, other options may exist – you can call CRA and ask what else they could accept.
If worst comes to worst and you just don’t have the backup materials or proof they need, CRA will generally assume you aren’t eligible for what you claimed and disallow it. Unless they have reason to suspect that you have been perpetrating fraud on exactly this issue for a few years, they usually don’t follow up or dig any deeper.
The Personal Tax Advisors rule stands: always read the letter!
* The first time, anyway. After that it’s no big deal.