CRA Document Reviews

You just got a letter from CRA and they want to review your receipts for medical, child care, Tuition and education, charitable donations, or some other sundry seemingly regular expense.  Your obvious next questions are “WTF?”, and “what did my accountant mess up now?”.  The answers to your questions in order are; CRA is just doing what it normally does, and most likely, nothing.

The CRA is encouraging everyone to electronically file their corporate and personal tax returns.  In fact new legislation has been passed by parliament that will financially penalize tax preparers if they don’t file returns electronically. The fines are significant enough that all tax preparers will be filing electronically very shortly, if they are not already doing so.  Electronically filing also gives tax preparers a sense of security, as they get confirmation that the return has been sent to and received by the CRA.  This confirmation is worth its weight in gold because if CRA loose the return they are going to assume it was not sent.  They will then blame you for not sending it, and you will in turn blame your accountant.  Sending stuff via mail does not give you a receipt or any proof that it was sent, electronic filing does.  This is part one of a much bigger problem.

Part two of the problem is that electronic files don’t include copies of receipts that would normally be submitted with paper copy tax returns.  The CRA regularly review returns and ask for documentation of large expenses.  Example, you pay for In-vitro Fertilization, your own MRI or Knee surgery.  These are expensive and deductible, but do not occur regularly.  Further, your return will be different than normal, which is also a “red flag”.  Accountants who knew this would file “special returns” by paper so that CRA had all the receipts, and to hopefully stop them from asking form them later and causing problems between the accountant and the client (No offense, but when CRA asks questions it is always the accountants fault, (insert eye roll here)).  Just because CRA question something does not mean that anything was done wrong or incorrectly.  I can cite examples where CRA denied a claim which was done correctly, just because it was not normal.  I know “give me an example”.  My example is this.  In the year of death capital losses can be used as a deduction from all income, not just offset capital gains.  I filed a return this way and I am still fighting with CRA even though this information is right on the CRA website in English (No it was not on my personal return).

Part three of the problem is that CRA has not been hiring enough new staff to deal with attrition rates from retirement, and staff leaving to pursue private sector careers.  The same amount of work needs to be done, just with fewer resources.  As a result CRA misplaces things that have been sent in.  They also do not always check paper files to see if the documents were previously sent in.  In short it is easier for them to ask you to provide them (more than once sometimes because they lost the first, second, or third set that has been sent in), than it is to go searching to see if they already have them.  Frustrating does not begin to cover the range of emotions one experiences when the CRA says they can’t find something you or your accountant sent in.

In conclusion, just remember that CRA regularly ask for documentation of deductions, and it is only going to get worse as we move away from paper filing returns.  Just remember to take all precautions to make sure your information arrives at its destination.  Send it registered mail.  Fax it and print the fax confirmation page to show when and where it was sent, and as proof that it was received.  Keep a copy of the fax so you can resend it or mail it should it be asked for.  Most importantly….  NEVER NEVER NEVER EVER send originals.  Always send copies and keep copies of the copies.  If CRA loose your originals you are up the creek without a paddle, and there is never a store around when you need one.