Many times, Canada Revenue Agency (“CRA”) does not accept an income tax return as filed. There may be a dispute regarding the deductibility of expenses or the characterization of income. Examples of these items may include:
- Travel expenses incurred in the course of business activities that CRA believes are personal in nature;
- Capital gains that CRA believes should be considered business income
In situations where the taxpayer has been unsuccessful in having CRA accept the rationale involved in preparing the income tax return, it is possible to file an Objection. This is a process whereby the matter is referred to the Appeals division for further consideration.
Objections can be filed by submitting “hard copy” including a form T400A “Notice of Objection” or by using their electronic submission services. There is some concern amongst Professional Accountants and Tax Lawyers regarding the electronic submissions. CRA has stated publicly that the agency welcomes and stands behind notices of objection filed electronically.
However, there is still concern that the objection may be rejected. Some of us are reluctant to use the CRA’s secure Represent a Client portal. We question whether filing an objection electronically means that it has been “served” under the rules of the Income Tax Act, while others want assurance that objections they file go directly to the Appeals Division.
The CRA has confirmed that it will accept income tax objections that are submitted in electronic form, if they are otherwise valid. The Act says notices of objection must be “served by being addressed to the Chief of Appeals in a District Office or a Taxation Centre of the Canada Revenue Agency and delivered or mailed to that Office or Centre” (subsection 165(2)). But the CRA points to another section of the Act that says the “Minister may accept a notice of objection served under this section that was not served in the [prescribed] manner” (subsection 165(6)).
As a result, CRA staff can accept income tax objections through the Register My Formal Dispute option in My Account or My Business Account. With Register My Formal Dispute, you can electronically file a notice of objection to an assessment, reassessment, determination or redetermination directly to the intake centres of the CRA’s Appeals Division for review and validation. The intake centres review all income tax objections received electronically in the same way as they review paper-filed objections.
In some cases, however, CRA will reject an objection on the grounds that it is “not valid”. Some of the reasons for invalid income tax objections are as follows:
- objections filed late and after the period allowed to apply for an extension of time;
- accounting issues including whether an amount of tax was withheld at the source; whether tax installments were properly credited to the appropriate tax year or whether the Statement of Account reflects a proper debit or credit.
- requests for relief from correctly charged interest or penalties are not considered to be objections;
- objections filed early: taxpayers sometimes object to correspondence from the CRA (e.g., an auditor’s proposal letter) before they have received a notice of reassessment or a notice of redetermination. The objection process begins only once such a notice of assessment or reassessment has been issued;
- subsequent reassessment for the same tax year: A reassessment that is issued after an objection is mailed or filed nullifies both the original assessment and the objection for the tax year or period. Following receipt of the reassessment, taxpayers may still want to pursue their recourse rights, so they must file a new objection to do so.;
- objecting to a nil assessment: objections to notifications that no tax is payable are generally invalid for example when only penalties are assessed
An alternative to filing a Notice of Objection is making an adjustment to the income tax return. This may be warranted when the issues are:
- correction of a mistake on a previously filed return;
- inclusion of tax deductions, credits or benefit claims that were forgotten;
- inclusion of new information such as receipts, invoices or information slips
- information not provided to CRA when requested which resulted in a reassessment
In these situations, you can generally resolve things faster by requesting an adjustment to a return rather than by filing an objection. We can request an adjustment to a T1 personal tax return by using the CRA’s new ReFILE service. We also can request a change in writing by sending a completed Form T1-ADJ, TI Adjustment Request to the tax centre.
For adjusting Corporation Income Tax Returns – T2, if the company or an authorized tax preparer filed a T2 return electronically, using the CRA’s approved Corporation Internet Tax Filing software, the same software can be used to efile an amended T2 return with any adjustments incorporated. Requests can also be made in writing by sending a letter explaining the change to your tax centre.
The Final Word
The process of objecting to a CRA assessment or reassessment, or adjusting a tax return that has been filed, is somewhat complicated and we want everyone to get the best possible result from CRA. If you have any questions, we encourage you to contact us to review your personal situation.
Please contact one of our Professionals with your questions.
Shawn Bausch, Assistant Tax Manager
The preceding article was prepared with assistance of:
Bruce Ball, FCPA, FCA, CFP
Vice-president, Taxation, CPA Canada
“Professional News that Matters to You”
December 21, 2017