What to do when your tax client disagrees with the CRA

Here are some key considerations to keep in mind when dealing with income tax objections for taxpayers

Serious businesswoman discusses something important with coworker When filing an objection with the CRA, it’s important to remain within the prescribed deadlines (Getty Images / SDI Productions)

As tax practitioners know, clients sometimes receive a notice of assessment or determination that does not agree with their income tax return. And, depending on the complexity of the issue, the solution can range from requesting a simple adjustment to objecting, to eventually filing an appeal with the Tax Court of Canada.

“To guide taxpayers and their representatives on the process, the Canada Revenue Agency (CRA) offers extensive information on its website as well as a decision tree for various situations,” says Bruce Ball, FCPA, vice-president of tax with CPA Canada. “The site also provides information on objections regarding other kinds of taxes, such as GST/HST, as well as EI, CPP and more.”

Here are some key considerations to keep in mind when dealing with income tax objections for individuals. (The considerations are similar for other taxpayers, although there are additional rules for large corporations that we have not covered.)

FOLLOW THE STEPS

If your client disagrees with their assessment, there is a process to follow, which is outlined on the CRA site:

The taxpayer or their representative contacts the CRA to see if the matter can be handled without going through the formal objection process.
If it is not possible to resolve the matter informally via a letter to the CRA, the taxpayer or their representative can file a Notice of Objection within the required timeframe. In actual practice, an objection may be filed while dealing with the matter informally just to protect your client’s rights to object within the deadline, says David Posner, CPA, a partner with Zeifmans LLP.
Once an objection is filed, the case is assigned to an appeals officer, who reviews the assessment and considers all the information provided to come to a decision. As Mark Tonkovich, a partner with Blake, Cassels & Graydon LLP, points out, this stage can involve meetings, calls and additional letters or other submissions, to make sure that the CRA gets the information it needs to come to a proposed decision.
If you do not agree with the appeals officer’s proposed decision (before a final decision is issued), it's sometimes possible to ask for the case to be reviewed by a second appeals officer.
The appeals officer will issue a final decision, which may be a confirmation of the earlier assessment, a reassessment or a variance. “They might decide that they agree with part of what you have put forth,” says Posner.
If the appeal is unsuccessful and a final, unfavourable decision is issued, the case can be taken to the Tax Court of Canada (with further possible appeals to the Federal Court of Appeal and, potentially, to the Supreme Court of Canada).

BE FAMILIAR WITH TYPICAL CASES

As Ball points out, there are many cases that are quite straightforward and can be handled at the preliminary stage, even before a formal objection needs to be filed. “For example, the CRA might have processed a specific claim incorrectly and it is clear that the taxpayer is eligible for the claim. In those cases, you may be able to request a tax return adjustment.”

Depending on other factors, however, such as the amount of tax at stake and the complexity of the underlying issues, an objection may be more appropriate, says Ball. “Also, if the adjustment route is followed, the taxpayer or representative must monitor the progress of the adjustment request and the deadline for objecting in case it will be necessary to file an objection later. Finally, if it appears likely that an adjustment request would not be processed before the objection deadline, then it may be best to object.”

Here are some issues that will typically only be resolved by pursuing an objection:

Childcare expenses: As Posner explains, the CRA may ask for backup documentation for a childcare expense claim but could disallow what is provided.

Expenses related to investment income: The CRA is very particular about the kind of backup they want to see, says Posner. “They might not be satisfied with what you sent in—even if the expense itself is deductible.”

T3s and T5s: Your client may have several T3s and T5s and the CRA has their own copy as well. “The CRA may reassess your client because they think the client failed to declare something,” says Posner.

The assessment does not include a certain claim: In this case, says Posner, you would call or write to the CRA to find out why they didn’t process the claim. “You can then either amend the return or object to the assessment.”

A late filing penalty is assessed: “If you can prove that the return was filed on time, you can object to the assessment of the penalty,” says Ball. However, if the penalty is allowed by law and there are extenuating circumstances, then the next step is to ask for taxpayer relief. [For other cases involving late filing, see How and when to use the tax relief program: advice from experts.]

KNOW THE OBJECTION PERIOD

If the taxpayer decides to go through the formal objection process, observing deadlines is important. Objections are generally due before 90 days after the date that the Notice of Assessment or Reassessment was sent. For individuals (other than trusts) and graduated rate estates, they have until one year after the return's filing due date for the year to object, if this date is later than the general 90-day deadline.

Objections are commonly filed by filing CRA form T400A (Notice of Objection) or online by using the “Register my formal dispute” option in My Account, My Business Account or Represent a Client.

Posner adds, however, that if there is a valid reason for missing the deadline (for example, illness or a death in the family), the CRA is usually very understanding. “They will often allow an extension as long as certain additional procedural requirements are met and the request is filed within one year of the objection deadline.”

Posner has also seen cases where he called the CRA within the 90 days to ask for a certain item to be corrected and the correction was not made before the objection deadline. “Our phone call served as proof that we wanted to object, even if our request wasn’t formally written. So, the CRA allowed it.”

Posner adds, however, that if the objection is more than one year late, “it’s practically impossible to have your case reviewed. Also, there is no deadline for the CRA to respond,” he says.

USE BEST PRACTICES

When filing an objection, there are several best practices to keep in mind:

Submit all supporting documentation (digitally, whenever possible) in a neat and organized way.
Don’t provide more information than what is requested or needed to support the tax position. Ensure that the issue and requested resolution are clearly described.
If the objection deadline is approaching and you don’t have all of the information ready, filing a letter explaining you are objecting to the assessment, with more information to follow, is better than filing late. “That said, it is generally best to file a complete objection when possible,” says Ball.
Know when to call in a tax lawyer, such as when there is an issue involving the interpretation of the law. [See The objections process: when should CPAs call in a lawyer?]

It is also important to consider the bigger picture for the objection process. As Tonkovich points out, the process can vary considerably from one case to the next. “Depending on their circumstances, taxpayers sometimes decide to skip all or some of the process and go directly to court.”

“If the objection process is not likely to be as efficient as the taxpayer would like, or if it is not likely to result in the relief they desire, then they may decide to forgo that process and commence a Tax Court appeal 90 days after the objection is filed. In the tax appeals process, it’s largely up to the taxpayer to decide whether and how they want to pursue particular issues,” he says.

STAY TAX AWARE

Learn more about how to use the CRA’s taxpayer relief program and when to call in a lawyer during the appeals process.

Plus, keep up to date on important tax issues, such as managing and mitigating tax practice risks, running a high-quality tax practice, and understanding tax rules for PSBs with our tax blog.