CRA Reassessment: What To Do If the CRA Wants to Review your Taxes
The CRA can reassess your taxes and charge you with a big, unexpected tax bill. Here’s what to do if you receive a CRA Notice of Reassessment and how the CRA reassessment period works.
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What is a Notice of Reassessment?
The Canada Revenue Agency (CRA) typically reviews tax returns once they have been filed. Once the CRA completes this initial review, you receive a Notice of Assessment (NOA). However, the CRA can also go back and do an additional review once the Notice of Assessment has been sent out. If this happens, you will receive a Notice of Reassessment. This CRA reassessment will replace your Notice of Assessment.
The initial NOA tends to be a very quick evaluation of your tax return. When you first submit your return, the agency does a basic review for any glaring errors or omissions. The agency may ask for additional information or documentation from you during this assessment period. However, most people receive their NOA pretty shortly after filing their returns.
If the CRA goes back and reassesses a return, this review could be more in-depth. The reassessment CRA does will make sure the numbers in your return are correct, often checking with third party sources.
The CRA reassessment will include the same important details as the initial NOA. For example, it will list how much tax you owe (if any) as well as other relevant tax information (such as your available RRSP room, for example). The changes that the CRA made to your assessment will be noted. You may have to pay interest and penalties on the tax debt listed as well. If you are reassessed, the CRA can charge compound daily interest dating back to when your taxes were originally due. This interest can be quite extensive if you owe a large amount.
In some cases, the reassessment CRA completes will be done due to the agency receiving new information. This information could conflict with the information you listed on your return. You may have entered a number incorrectly or made a mathematical error and this mistake could become known when other information is provided to the CRA. For example, this could happen in a situation where the numbers provided by a taxpayer do not match the numbers provided by an employer. If your employer states that you earned a different salary than the one you disclosed on your taxes, you will likely be reassessed.
When you receive a Notice of Reassessment, it will likely list an amount that you owe the CRA. If you agree with the CRA reassessment payment can be made and the situation will be resolved. However, if you disagree with the CRA reassessment, you are able to object.
Being reassessed does not necessarily mean that you will be audited. It also doesn’t mean the agency considers your situation to be tax fraud. Small errors (such as inputting a number incorrectly) will be corrected by the agency, taxes owing will be adjusted, and nothing else may come of the situation.
The CRA reassessment period is typically three years from the date listed on the original Notice of Assessment. However, the CRA is able to reassess a return outside of this three-year period if the agency suspects fraud.
CRA Reassessment Period
As mentioned, the agency typically has three years to assess a return again and prepare a Notice of Reassessment. This is what is commonly known as the CRA reassessment period. This means, for example, if you file your 2018 income taxes in April 2019 and receive a Notice of Assessment in June 2019, the CRA can reassess your 2018 return until June 2022.
The agency can reassess a return at any time in this period if it feels like there is a reason to do so. One reason why the agency may reassess a return is due to the CRA Matching Program. This is a program that the agency conducts each year between September and March as a part of the CRA reassessment period. In short, it is a process where the CRA compares information provided to it by taxpayers with information the agency receives from third parties. For example, the agency uses details provided by employers and banks to make sure that income is being correctly reported. If the CRA finds an error through this program, it will correct the error and issue a reassessment.
The agency is authorized to conduct reassessments outside of the standard three-year CRA reassessment period if it suspects fraud has taken place. If this happens, the agency can go back several years, reassess returns from these years, and begin charging interest on these outstanding amounts owing. These interest charges date back to when the amounts should have originally been due. If the agency suspects fraud, it may also charge penalties, conduct an audit, or potentially seek criminal charges.
One way the reassessment CRA conducts can happen outside of the standard three-year period is if the agency discovers that the expenses and deductions that a person claimed were unacceptable. If it found this while reviewing a return inside the normal three-year period, it could then investigate the numbers from the previous year as well. If it finds a similar error in these returns, the CRA could say that it has reasonable grounds to review returns outside the standard three-year reassessment period. If this happens, the agency can go back many years to reassess returns.
This is why the CRA recommends that taxpayers keep all relevant tax documents for at least six years from the end of the year to which the records relate. If you are reassessed or audited, you will want to have receipts, invoices, and other important information available. Not only will the CRA potentially request this information, but if you decide to object to the reassessment, you will need to have support to back up your points.
Objecting to a CRA reassessment is a right that all Canadian taxpayers have. However, it is important to be prepared in these situations. Not only should you have all the relevant documents, but you should also be aware of CRA processes and negotiating tactics. The CRA is a large and powerful agency and it can be very difficult to communicate and negotiate with. This is why it’s often a good idea to have a professional on your side when doing so.
CRA Reassessment Processing Time
Most people understandably want to know the times associated with the assessment and reassessment processes. This makes sense as you want to be aware of when you’ll receive the reassessment CRA may send out. If you know when you can expect to receive your review, you can better prepare yourself financially for the situation.
When it comes to receiving a Notice of Assessment, the CRA is generally quite quick. If you submit your tax returns electronically, you will usually receive your NOA within about two weeks. If you mail in a paper return, it can take up to eight weeks to receive your assessment. However, if you filed close to the deadline or during any other time that is busy for the CRA, it could take longer to receive your assessment.
When it comes to a CRA reassessment, you could receive this notice at any time during the CRA reassessment period. As mentioned, the CRA is typically able to conduct a reassessment whenever it feels one is necessary. The standard CRA reassessment period is three years from the date on your original Notice of Assessment. However, as mentioned, the agency can go back and reassess older returns if it feels as though there is a suspicion of fraud.
The CRA matching program typically runs between September and March. This is a program where the agency takes information it receives from third parties and compares this information with details listed on individual tax returns. For example, the CRA may use numbers provided by an employer to ensure that taxpayers are reporting their incomes accurately. It can also use data provided by financial institutions to confirm that a taxpayer is correctly claiming the amount of interest they earned on their investments, for example. Each year, the CRA finds instances where the numbers it receives from third parties do not match the numbers it has been provided on individual tax returns. Therefore, it is slightly more likely that you will receive a CRA reassessment between September and March, when this program typically runs.
However, the matching program isn’t the only reason that the agency may conduct a reassessment, so a taxpayer could easily receive a reassessment outside of this period.
If you disagree with the CRA reassessment, it is your legal right to be able to file an objection. However, there are time limits associated with this objection. For instance, if you wish to object, you must file a Notice of Objection with the Chief of Appeals of the CRA within 90 days of the date on the Notice of Reassessment. Working with a professional is critical at this time. If you make an error or miss a deadline, you could have your objection rejected and end up having to make a CRA reassessment payment on a tax debt that you do not agree with.
You obviously don’t want that to happen. Our team of experienced ex-CRA and legal professionals have the skills and knowledge needed to successfully object to CRA assessments, reassessments, and resolve many tax issues. We know how to effectively communicate and negotiate with the agency and we can also help you prepare your objection, making sure that you are presenting the strongest possible case. For more information on how our team can help, please do not hesitate to contact us today.
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When Do You Receive Notice of Reassessment?
As mentioned, the CRA reassessment period typically lasts for three years from the date on the original Notice of Assessment. That said, the agency is able to go back and review and reassess older returns if it feels like fraud may have been committed. If this happens, the agency will have to show why it believes fraud occurred. A simple input error usually won’t be enough to be considered fraud.
The CRA is able to reassess returns for a number of reasons and, in general, you could receive a Notice of Reassessment at any point. While you usually receive your initial Notice of Assessment within a few weeks of submitting your tax return, the CRA can decide to conduct a reassessment whenever it deems necessary. Many returns that are reassessed are done during the three-year CRA reassessment period. However, it’s important to note that a reassessment can come outside of this period in certain situations, such as when fraud is suspected. It can also come at nearly any point in the year.
The CRA matching program usually happens between September and March each year. This program is one where the agency uses information that it receives from third parties to verify numbers supplied on tax returns. For instance, the agency may receive information from your employer regarding your income. It will then check the numbers provided by your employer against the numbers that you listed for your income on your tax return. If these numbers do not match, you will likely receive a CRA reassessment.
It is important to note that simply receiving a CRA reassessment does not mean that the agency believes you have committed tax fraud, nor does it mean that you will audited. Many reassessments are done for minor errors, such as a person entering information incorrectly on their tax return by accident. These typically don’t result in any further action. In most of these cases, people simply pay their taxes (if possible) and move on.
However, if you receive your CRA reassessment and you disagree with it, there are actions you can take. A formal objection is the official way to state your disagreement. This process is handled by completing a Notice of Objection form. If you decide to go this route, you will want to have a professional on your side to give yourself the best chance of success.
Our team is comprised of legal and ex-CRA professionals who understand what it takes to successfully negotiate with the CRA and resolve tax issues. The agency can be very difficult to deal with and our team levels the playing field. If you have received a CRA reassessment that you disagree with, if the CRA states that it suspects fraud in your tax returns, or if you are dealing with any other tax issue, please contact us today. We will give you the expert help, support, and representation that you need.
How to Respond to a Notice of Reassessment
You are responsible for providing correct information to the Canada Revenue Agency (CRA) when you file your tax returns. There are policies in place that help ensure compliance and accuracy in tax returns. One of these policies is the assessment and CRA reassessment process. When a taxpayer submits their returns, the CRA conducts an initial review. When the CRA completes this review of your submitted tax filing, it will send you a Notice of Assessment.
However, the CRA can go back and look at – and possibly reassess – past returns. As mentioned, the CRA is able to review and reassess returns within three years of the initial Notice of Assessment. This means your 2018 tax returns, for example, would likely be initially assessed by the CRA in May 2019 and, therefore, the agency can go back and reassess your 2018 return until May 2022 (which is three years after the date on the Notice of Assessment). However, this three-year period is not written in stone.
If the CRA suspects fraud, it can and will go back farther. This means that the CRA can go back and reassess tax returns that would normally be outside of the standard CRA reassessment period.
If the CRA decides to review your returns after the initial Notice of Assessment has been sent, the agency will send you a Notice of Reassessment, which will replace the Notice of Assessment. You will also receive a Notice of Reassessment if your return has been adjusted through the Beneficial Client Adjustment Initiative. This is an initiative where the agency looks at under-claimed credits, Canada Pension Plan contributions, your RRSP deduction limit, and other areas. This initiative is part of the CRA matching program that uses information supplied by third parties (such as employers or financial institutions) to determine if the numbers on a tax return are accurate.
Under this program, the CRA will compare the information that you provided on your return with the information submitted by your employer, your bank, or another third party. If you have failed to report your income accurately on your tax return, your Notice of Reassessment will list the corrected numbers along with the taxes and applicable interest owing.
When you receive a Notice of Reassessment, you have options for how you can respond. If you agree with the information noted in the CRA reassessment, you are responsible for paying the taxes owing. Depending on the amount, making a CRA reassessment payment could be challenging. In some situations, the CRA may be willing to accept payment monthly rather than in a lump sum, but it is best to work with a professional when attempting these negotiations.
If you disagree with the CRA reassessment, you can file a formal objection. This is done by completing a Notice of Objection. If you decide to go this route, it is very important that you work with an experienced professional. Accuracy and timeliness are crucial when objecting to a CRA reassessment and having professionals on your side can make the difference between a successful objection and one that is, unfortunately, rejected.
What Should You Do if you Receive a Notice of Reassessment?
As mentioned, when you receive a CRA reassessment, you have options for how you wish to proceed. Before you decide which option is the right one for you, it’s important to understand what these options are and the details of these options. The more knowledge you have, the better the decision you will make.
If you receive a Notice of Reassessment, you can choose to accept the reassessment and pay the amount listed as owning. Of course, depending on your situation, this could be very large amount. If you don’t have the funds available to pay the CRA in full right away, interest charges will continue to add up, making it even more expensive to pay off the debt.
If you are in this situation, you’ll want to speak with tax professionals before you begin any negotiations with the CRA, including agreeing to a CRA reassessment payment plan. The CRA can be very strict when negotiating payment arrangements. The agency considers tax debt to be a main priority, and thus often suggests plans that see the tax debt repaid quickly, usually at the expense of other debt. In addition, the agency also uses its considerable collection powers to influence negotiations. Working with experienced professionals can help you work out an arrangement that makes sense for you.
Remember, accepting the CRA reassessment and paying the taxes is not the only option that is available.
If you disagree with the reassessment, you have 90 days to follow with a Notice of Objection. It is best that you file this objection with the support and advice of a trusted tax professional, as dealing with the CRA can be complicated and confusing. You’ll want to make sure that you do everything right.
When you file your objection, you will need to provide supporting documentation to prove that the numbers on the CRA’s Notice of Reassessment are inaccurate. The more proof you have and the more straightforward and accurate the information you supply, the greater your chance of a successful objection. Having professionals on your side will help you prepare your case. Our team understands the CRA, how the agency works, and how to best resolve tax issues. Working with our team can be incredibly beneficial for your chances.
Once the Notice of Objection is received, the CRA will review your case and it may attempt to negotiate an acceptable solution with you. If this happens, you will certainly want to have a trusted tax professional on your side. Not only are CRA negotiators very tough and very experienced, but CRA processes and Canadian tax law can be very convoluted and confusing. CRA agents know these laws and policies inside out. Working with a professional who has the same detailed understanding levels the playing field. When it comes to communicating and negotiating with the CRA, the most successful negotiations are done with the assistance of professionals.
If you are in this situation, please contact us today. Our team of ex-CRA and legal professionals can help you navigate the situation and ensure your greatest chances of success.
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How to Pay Notice of Reassessment
If you receive a Notice of Reassessment, you have a few options. If you agree with the reassessment, then you can pay any taxes owing and consider the situation resolved. CRA reassessment payment is generally requested in a single lump sum payment. However, this can understandably be tough to do. This is especially true since the CRA can charge interest payments dating back to when the amount should have initially been due.
For instance, consider a situation where you file your 2018 tax return in April 2019 and your tax payment deadline was May 1, 2019. If you are reassessed in March 2020, then you may be charged interest dating back to May 1, 2019. If you owe a large amount of tax debt, the amount you will likely be charged in interest can be significant. In addition, you may also be charged penalties by the CRA if the agency believes penalties are deserved.
The CRA may be willing to allow you to make your CRA reassessment payment in monthly payments rather than in a lump sum. However, before the agency will be willing to do so, it may request that you provide details on your income, expenses, debts, etc. and show that you attempted to pay your tax debt in full. This can be an issue as the CRA considers debts that are owed to it to be the primary and most important debts. This means that, once the agency has access to your financial information, it can request a payment plan that allows it to receive as much money as possible each month, even if making these payments comes at the expense of your other financial responsibilities.
For example, if you owe credit card debt, the CRA may determine that you are putting too much of your income towards this debt and propose a payment plan that sees you only make the minimum payments so you can put more towards your tax debt. This sort of CRA reassessment payment plan will be very costly for you, as you’ll end up paying significant interest on your credit card debt. It will also possibly squeeze you financially so that you do not have any buffer or money available for emergencies.
The CRA is a very powerful agency. It has incredibly strong collection powers and can garnish wages, freeze bank accounts, and even potentially seize assets if a taxpayer does not pay their tax debt or come to a payment arrangement that the CRA considers to be acceptable. The agency uses the threat of these powers to influence negotiations. People are much more likely to agree to a CRA reassessment payment plan (even an unfavourable one) when the threat of collection action exists.
This is why it is important to have professionals on your side when you communicate or negotiate with the CRA. Our team has the experience, knowledge, and skill needed to speak to the CRA and resolve tax issues. Trust our team and contact us today to find out how we can help.