Tax returns for the average individual or small business owner can seem overwhelming and complicated. All too often taxpayers and their preparers err on their tax returns by claiming deductions that they truly believe they were entitled to but perhaps were not, misplacing receipts in some instances, etc… All will seem well until CRA comes knocking.
Sometimes CRA will disagree with the information on your initial tax filing. Other times they will disagree later when taking a second look at a return. Both of these cases may result in a re-assessment. When this happens, CRA may elect to levy a penalty against you. For example, CRA has the power to impose massive penalties for what they call gross negligence just because they believe you were willfully negligent. So what happens if you agree to the assessment or re-assessment in terms of the amount of taxes owed – but simply disagree with a penalty that has been levied? You have the right to object to their assessment or re-assessment.
You can make a CRA objection to penalties even if you agree with that amount.
Objecting is a formal process and cannot be addressed simply through a phone call or letter. The exact steps and forms must be used within the timelines set out. Your objection can be rejected on a simple technicality.
- Filing an objection is time sensitive. In most cases, the objection must be filed within 90 days following the date of the (re)assessment.
- If you fail to file your objection within 90 days you may apply for an extension of up to one year. It is at CRA’s discretion to grant an extension and you must explain why you are deserving of the extra time.
- If CRA rejects your application for an extension your only choice is to abandon your claim or take the matter up to the Tax Court of Canada.
- Once 90 days and 12 months have passed, under the Income Tax Act, you are out of options and no longer have the ability to file an objection.
So how do you object?
Firstly, you must fill out the appropriate form for an objection and submit it with all relevant supporting documentation that explains why you disagree with the assessment. The more professionally the argument is made (recommended in similar format to that used for the Tax Court of Canada including quoting relevant decisions already made by the Court) the greater the likelihood of success. Depending on the complexity of the objection you may want to use the services of a professional experienced in these matters to manage this process.
An example of this is the many taxpayers who have found themselves, unwittingly, caught up in charity schemes. There have been many instances where gross negligence penalties were assessed and then withdrawn on objection – both by CRA and through orders made by judges in Tax Court.
After your objection has been submitted, a formal review process will commence and you will be notified of the decision. This can take several months or even years. During this time CRA will pause enforcement action pending the outcome of your objection, with one exception, collection action is not stayed for assessments under the E.T.A. such as HST. This is a double-edged sword because while the CRA agent will not be pursuing you, if the objection fails to succeed, penalties and interest will be assessed against you, retroactively! In the case of charity schemes we have seen objections take upwards of 8 years to have a decision rendered. The effect of daily compounded interest on the tax and penalties often making the final tax bill unmanageable.
What happens if your CRA objection to penalties is rejected? Are you out of options? No, if your objection is not accepted you have three options: Go to Tax Court, apply for Taxpayer Relief, or bite the bullet and pay what was assessed.
To find out more about objecting to a Notice of Assessment or to apply for Taxpayer Relief please contact Tax Solutions Canada by calling 1-888-868-1400 or visit www.taxsolutionscanada.com.