Many taxpayers experience delay in having their tax return processed as a result of the Canada Revenue Agency (CRA) conducting a “pre-assessment review.” Practically, a pre-assessment review is not much different than a mini audit. In some cases, the CRA reviews a return before processing it and issuing an assessment. Unusual refunds, donations, medical expenses, professional fees, and substantial interest expenses may trigger a pre-assessment review (or in some cases a full audit).
The CRA will conduct the pre-assessment review in the same manner as an audit. The review will usually be initiated by a letter from the CRA identifying the issue to be reviewed. The CRA will seek the taxpayer’s (or their representative’s) submissions with respect to whatever is being reviewed. If the CRA accepts the taxpayer’s position, the return will be processed and assessed as file. If the CRA does not accept the taxpayer’s filing position, the CRA will process and assess the return with an adjustment, which will generally lead to additional taxes owing, interest, and in many cases penalties.
If the taxpayer disagrees with the CRA’s adjustment, the taxpayer may object to the assessment. Taxpayers have 90 days from the date of the assessment to serve an objection on the CRA.
In order to begin the appeals process, the taxpayer must first file an objection with the CRA to the Appeals Division. If, 90 days after serving the objection, the Appeals Division has not vacated, confirmed or reassessed the assessment (CRA does not usually even respond to objections within 90 days of being served), the taxpayer may appeal the matter directly to the Tax Court of Canada (TCC). Given the current hostility from the CRA Appeals Division towards taxpayers, appealing directly to the TCC is becoming much more frequent.
The following considerations may help determine whether appealing directly to the TCC would be advantageous:
- Certain files may be unlikely to settle or be resolved at the CRA objection stage (eg, the dispute is a legal issue or concerns CRA policy, or involves international tax);
- Files that involve CRA headquarters;
- Files where the audit is flawed (appealing directly to the TCC limits the CRA’s ability to correct mistakes made during the audit);
- Files where speed is welcome (TCC files usually move more quickly than CRA objection files; moreover, you save the year or two that would otherwise be spent dealing with the CRA appeals department); and
- Files where a precedent is required for other files / taxpayers.
If your current year tax return (or any prior year) has not been processed or is being reviewed or audited, please contact us to discuss the options available to you.