By the middle of May 2018, the Canada Revenue Agency (CRA) had processed just over 26 million individual income tax returns filed for the 2017 tax year. All returns filed with and processed by the CRA have one thing in common: they result in the issuance of a Notice of Assessment (NOA) by the Agency, outlining the taxpayer’s income, deductions, credits, and tax payable for the 2017 tax year.
The amount of any refund or tax payable will appear in a box at the bottom of page 1, under the heading “Account Summary”. On page 2 of the NOA, the CRA lists the most important figures resulting from their assessment, including the taxpayer’s total income, net income, taxable income, total federal and provincial non-refundable tax credits, total income tax payable, total income tax withheld at source and the amount of any refund or balance owing. Page 2 also includes an explanation of any changes made by the CRA to the taxpayer’s return during the assessment process and provides information on unused credits (like tuition and education credits) which the taxpayer had earned and can carry forward and claim in future years. On page 3 of the NOA, the taxpayer will find information on his or her total RRSP contribution room (i.e., maximum allowable RRSP contribution) for 2018. Finally, page 4 provides information on how to contact the CRA with questions about the information provided on the NOA, on how to change the return filed and on how to dispute the CRA’s assessment of the individual’s tax liability.
In most cases, the information contained in the Notice of Assessment is the same as that provided by the taxpayer in his or her return, perhaps with a few arithmetical corrections made by the CRA. In a minority of cases, the information presented in the Notice of Assessment will differ from that provided by the taxpayer in his or her return. Where that difference means an unanticipated refund, or a refund larger than the one expected, it’s a good day for the taxpayer. In some cases, however, the Notice of Assessment will inform the taxpayer of an unexpected amount of tax owed.
When that happens, the taxpayer must figure out why, and to decide whether or not to dispute the CRA’s conclusions. Many such discrepancies are the result of an error made by the taxpayer in completing the return. A lot of information from a variety of sources is reported on even the most straightforward of returns and it’s easy to overlook, for instance, a T5 slip reporting less than fifty dollars in interest income earned. Even though most returns are now prepared using tax software (for 2017 returns, over 87% of returns were prepared using such software) which minimizes the chance of arithmetical errors, mistakes can still occur. Such tax software relies, in the first instance, on information input by the user with respect to amounts found on T4, T5, and other information slips. No matter how good the software, it can’t account for income information which the taxpayer hasn’t included in the inputs. In other cases, the taxpayer might transpose figures when entering them, such that an income amount of $18,456 on the T4 becomes $14,856 on the tax return. Once again, the tax software has no way of knowing that the information input was incorrect and will calculate tax owing on the basis of the figures provided.
Where there is additional tax owing because of an error or omission made by the taxpayer in completing the return, and the CRA’s figures are correct, disputing the assessment doesn’t really make sense. There is, as well, a persistent tax “myth” that if a taxpayer doesn’t receive an information slip (T4 or T5, as the case might be) for income received during the year, that income doesn’t have to be reported and therefore isn’t taxable. The myth, however, is just that. All taxpayers are responsible for reporting all income received and paying tax on that income, and the fact that an information slip was lost, mislaid, or never received doesn’t change anything. The CRA receives a copy of all information slips issued to Canadian taxpayers, and its systems will cross-check to ensure that all income is accurately reported.
There are, however, instances in which the CRA and the taxpayer are in disagreement over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s claim for a medical expense, or for a deduction claimed for a business expenditure, which the taxpayer believes to be legitimate. When that happens, the taxpayer must decide whether to dispute the assessment.
Before making that decision, and whatever the nature of the dispute, the first step is always to contact the CRA for an explanation of the reasons why the change was made. While the information provided in the NOA is a good summary of the taxpayer’s tax situation for the year, it may not always be clear to the taxpayer precisely why there is an increase in the amount of tax which he or she must pay for the year. It is no longer possible to have a face-to-face meeting with a CRA representative at a Tax Services Office to obtain such information, as in-person services were discontinued a few years ago. Taxpayers who want more information about their Notice of Assessment must now call or write to the CRA. The first step to be taken would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281, to obtain more detailed information. If that call doesn’t resolve the taxpayer’s questions, he or she can write to or fax the Tax Centre which processed the return. The name of that Tax Centre can be found in the top left hand corner of the first page of the Notice of Assessment, and fax numbers and mailing addresses for the Tax Centres are available on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html. Communication with a Tax Centre can only be done by fax or mail, as phone numbers for Tax Centres are not available to the public.