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Shortly before Christmas, CRA issued a notice describing its upcoming letter campaign initiative to kick-off the 2011 tax year.
Back on Sept. 30, the Minister of National Revenue issued a news release wherein reference was made to the fact CRA had “identified another $138 million in unpaid tax through the CRA’s voluntary disclosure program”. Evidently “identified” means the same as “collected” because, with its new letter campaign initiative, CRA is clearly counting on the success of its past fundraising efforts.
The latest CRA notice states that its purpose is to “provide Canadians with the information they need to understand their tax obligations.” Reading between the lines, this rather innocuous phrase could be interpreted as “we at CRA think you may have cheated on your taxes, so you may want to reconsider your filing position and pay-up before we send out a posse.”
This notice makes specific mention of “claims related to rental and/or business activities,” so it’s a sure bet that taxpayers who have income and expenses from these sources will be the targets of this campaign. The notice points out that there will be two types of letters sent to Canadians “across the country” lest there be any misconception that certain regions might be exempt.
The “luckiest” group will receive the “educational” letter which will provide “information about the eligibility criteria for certain deductions they have claimed on their recent income tax returns”. This group will likely have been selected because they have claimed a tax deduction or credit that is frequently misunderstood and often claimed in error.
Unlucky taxpayers will receive the “intent to audit,” letter which will contain the same information as the first letter, but with the additional note “that their income tax returns may be selected for audit.” CRA states that the “goal of the campaign is to educate taxpayers about certain claims made and to promote compliance with the Income Tax Act.”
If after being “educated,” taxpayers find they have claimed deductions in error or, perhaps, provided inaccurate information, CRA will “provide taxpayers with the opportunity to amend their income tax returns by completing an adjustment request.” This “beating of the bushes” approach is a recent trend in the realm of tax collection, not just in Canada, but in other countries as well. Government resources are scarce and it costs a lot of money to hire and train an income tax auditor. Once fully-trained, time and physical capacity then limit the number of audits an auditor can conduct.
No doubt it’s far more cost-effective for CRA to assign a few staff members to develop algorithms to scour CRA’s taxpayer database for potential miscreants, send out tens of thousands of mildly threatening “campaign” letters, then sit back and watch the money roll in.
If you receive one of these letters in 2011, you should review your previous tax returns for accuracy and potential errors. Don’t assume that you’re off the hook because you used a professional tax preparer to complete your return. Tax preparers use information provided by the taxpayer, and, at the end of the day, taxpayers are responsible for their own tax returns. If, upon review, everything looks fine, then you needn’t do anything further.
On the other hand, if you’d like to make changes, you’ll should complete Form T1ADJ or go to CRA’s website, logon to ‘My Account’ and follow the step-by-step instructions.
Jim Maroney, CA is a Taxation Services Partner in MNP's Maple Ridge office.
Jim is featured monthly in Maple Ridge News, offering advice and providing input on a variety of tax-related issues. View the full article here.
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