Tuesday, August 14, 2012

CRA Processing Reviews

I was (un)lucky enough to be selected this year for a CRA processing review. This was a virtual certainty given that I was paying tuition for 3 people at once. They want to see documentation for all the tuition deductions I claimed. Some people mistakenly refer to these reviews as an audit, but audits are much more involved.

Processing reviews are quite common when you file your return with tax software and therefore don’t submit any forms or other documentation. CRA is simply doing a spot check to see if you have proper documentation for some of your deductions.

I find the language used in the CRA letter to be quite amusing:
“To determine if we have assessed your return correctly, we need additional information.”
A more accurate, but more adversarial statement would be
“We need to see documentation to make sure you’re not a lying deadbeat.”
Don’t get me wrong, though. I’m quite happy that CRA does these processing reviews to keep people in line. Otherwise cheating would be rampant and honest people would have to pay more taxes to make up the difference.

I do feel sorry for those who manage to lose their documentation in the few months since filing their taxes. It wouldn’t be too hard to imagine that a box gets lost in a move or any number of other ways to lose some paperwork.

I can see this being a particularly difficult problem for someone running a small business with low margins. If you have revenues of $250,000 and total costs of $200,000 (not including paying yourself), having even a small percentage of the deductions disallowed due to inadequate documentation could be devastating.


  1. I have had this privilege twice now, both times to do with my Daughters' rent credit claims. First one I passed, the second one, remains in the hands of the CRA judges.

  2. I just got two of those letter due to donations to the church. I don't think CRA can conceive of the fact that someone would give away 10%+ of their income.

  3. @James: same with us. Only the church is only 7%, then up to 4% to two dozen other charities. So lots of chits to copy.

    I am commonly away for a month in the spring and after 4 years in a row of scrambling to get the paperwork in by the deadline (if the letter comes week one of my trip, I'm out of time by the time I actually see the letter) I started to get everything ready when I did the taxes so I could just pop it into an envelope. That was used one year, but for the past 2 years I have not been reviewed. So maybe the CRA is seeing a pattern and accepting that I really do give away 10 - 12% of our family income.

  4. @Big Cajun Man: "CRA judges" -- that's a funny one. For big stakes you can hire a lawyer and head off to get in front of a real judge, but for smaller amounts, I guess CRA workers are effectively judges.

    @James and @Kate: I suspect that many people give away 10% or more of their income, but it is usually in the form of interest on credit cards or other debt. Unfortunately for them it's not deductible.

    Getting paperwork prepared in advance for a possible processing review is an interesting idea.

  5. I got one asking for proof of foreign taxes paid - I had reported foreign income from US ETF investments and CRA wanted proof that the standard 15% which automatically gets deducted by the US govt had been paid. Next CRA will want proof that the cost of trading commissions was actually as stated.

  6. @Canadian Investor: In the past I've had T-slips showing foreign taxes paid, but failing that I'd have to use account statements as "proof".