How to decipher your CRA Notice of Assessment

And how to object to an assessment

You filed your tax return last month, and now you’re getting various brown envelopes or email notices from the Canada Revenue Agency. One of these will be your Notice of Assessment, the CRA document that says the tax department has had a first look at your return and has found it either okay or problematic. Here’s what to do if the CRA sends you an unfavourable Notice of Assessment

The first thing to do is find out why the CRA has disallowed a claim or otherwise increased your taxes. If there’s a difference between your figures and what they have calculated, it’s quite possible that no one has even looked at your return beyond a computer or a data entry clerk. So don’t panic. You have a legal right to appeal your case if you think CRA has made an error. More importantly, if you do this properly, you stand a very good chance of winning.

First, find out what’s wrong

The first place to look is on page 2 of the Notice, under the heading “Explanation of changes and other important information.” In the vast majority of cases, this explanation is computer-generated, and much of the “explanation” you find on the page may actually have nothing much to do with the discrepancy.

In fact, at this stage, the vast majority of problems relate to some type of clerical error. If your return was not prepared with tax-filing software, you may have simply made a calculation or entry error, or perhaps a CRA clerk has simply entered the wrong number in the wrong field on their computer. In other cases, there may be problems with the application of installment remittance (e.g., CRA has applied it to the wrong year or, worse still, to a different taxpayer). Other discrepancies might include a late filing penalty even though you filed on time.

When reading the Explanation of changes, look for something that “doesn’t ring a bell,” especially if there are numbers shown in the particular paragraph.

If, after reading the Explanation of changes, you still don’t know what’s going on, then take a look at the “Summary” calculations contained in the notice. On the left-hand side of the page, you will see key box numbers from your tax return, with CRA’s calculations on the right-hand side of the page. Compare these with your return on a line-by-line basis – you should be able to zero-in on where the discrepancy is.

If you still don’t know what’s going on, one option is to try calling the Tax Services Office and ask them (of course, another option is to go to an accountant). The Notice of Assessment itself provides a toll-free phone number to request an “explanation” – even though the Notice itself purports to give one.

Don’t assume that if and when you get through to a live person on the line, you are dealing with an expert on the matter in question. This simply isn’t the case. In many cases, the CRA employees who staff the call-centre lines may not have particular expertise in your problem and will certainly not be familiar with your tax return.

The next step

Once you understand the problem and you think that you’re in the right, your next step is to contact CRA itself. You may do this in writing by sending your enquiry to the Tax Centre to which you sent your return, directed to the attention of the Enquiries and Adjustments Division at the address on the front of the notice. The Notice of Assessment itself indicates that if the problem can’t be resolved, you can find more information on how to register a formal dispute at the CRA website.

The CRA no longer offers walk-in counter service at any Tax Services Office, so first, you’ll have to try to resolve a dispute by mail, phone, or online.

The Notice of Objection

Once a Notice of Assessment is received, collection procedures may commence immediately. However, the collection procedures should stop if a Notice of Objection is filed on a timely basis.

Although some people go straight to a Notice of Objection, contacting the Enquiries and Adjustments section will give you an extra kick at CRA, just in case there’s a problem. When contacting the CRA I suggest the following:

If you write a letter, put “Re: [your name]; [Social Insurance Number] – 2018 Notice of Assessment” prominently at the top of the letter. In most cases, you should state that there has been an incorrect assessment, give the line number, the previous amount, the amount of the adjustment, and the revised amount. Don’t forget to include your phone number and name and address. Provide any reasons or details and whatever backup documentation may be relevant, even if you have already included it with your tax return. What you want to do is give the CRA adjuster a “self-contained package” so that he or she can zero in on the problem.

In general, you should keep your correspondence with CRA factual and to the point. CRA’s interest is in resolving the dispute as quickly as possible. They don’t want to hear your life story, or what you think of the government and our tax system.

CRA will, as a matter of standard procedure, reassess returns if the adjustment relates to an error in arithmetic or a misunderstanding of the facts. If your dispute is based upon a different interpretation of the law, you have to file a Notice of Objection.

In many cases, your letter may be sufficient to clear up the matter in your favour. But if it becomes necessary to actually talk to a CRA auditor, always be courteous and to the point, avoiding heated demands or arguments. Getting along well with CRA goes a long way towards a successful resolution – in your favour.

Samantha Prasad, LL.B., is a Partner with Toronto law firm Minden Gross LLP, a Meritas Law Firm Worldwide affiliate, and specializes in corporate, estate, and international tax planning. She writes frequently on tax issues, and is the co-author of Tax and Family Business Succession Planning, 3^rd Edition. She is also co-editor of various Wolters Kluwer Ltd. tax publications. Portions of this article first appeared in The TaxLetter, © 2019 by MPL Communications Ltd. Used with permission.

Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.