Updated: Mar 2
We all dread THAT letter - especially, when in times of crisis and grief. One family is left reeling as details regarding their income tax returns went unnoticed as they grieved.
Please note: The names and details have been changed to uphold client privacy.
In 2016, the Mannis family lost their son David. It was the conclusion of years of severe medical issues for their son. Despite the family's grief, parents Monica and Elvin, continued with their new reality, including filing their tax returns. They used a professional tax preparation service they trusted, with no further thought until...
In January of 2020, Monica was taken aback by a brown envelope in the mail. The letter, upon reading, was a demand for nearly $9,000 repayment from the Canada Revenue Agency! Monica, believing it was a simple error, did her best to provide the documentation CRA requested in their letter. A short time later, the Mannis family learned CRA was still demanding payment, threatening garnishment orders and seized bank accounts.
In a panic, Monica reached out to a ProStrata-G ProAdvisor to look over the problem. Our Senior ProAdvisor helped Monica log into CRA’s “my account” and found the facts surrounding the claw-back:
The year prior to David’s passing, in 2015, Monica applied for and was approved for the Disability Tax Credit (DTC). They declared the disability tax credit/infirm co-dependent on Monica’s 2015 Tax return.
Elvin’s 2014 tax return was filed without declaring his T4 income resulting in an inflated refund for Monica, and artificially higher Child Tax Credit. CRA is asking for the inflated amounts to be returned.
Since the Mannis Family had only received the approval for the DTC in 2015, it had not yet been retroactively applied to Monica’s 2014 return. This left Monica with unclaimed credits for the 2014 year. Once applied, CRA would "owe" these credits to Monica.
In 2016, The Disability Tax Credit was mistakenly omitted on Ms. Mannis' filed return, leaving Monica with additional unclaimed Disability Tax Credits, as well as unclaimed Child Tax Benefit for the 2016 year.
Our Senior ProAdvisor explained that although Monica and Elvin would "owe” CRA for the undeclared 2014 income, the retroactive DTC and CTB for 2014 and 2016 would offset most of this “debt”.
Monica and Elvin had provided all the requested information noting their objection to the claw-back, and even explained their extraordinary circumstances. So, if they had complied and the file was "under review", why was CRA collections still pursuing payment?
Direct from the CRA website:
"CRA cannot start collection action during the time that you dispute your debt by filing a notice of objection or appeal."
"Penalties and interest may be waived or cancelled in whole or in part, if they result from circumstances beyond a taxpayer's control. Extraordinary circumstances that may have prevented a taxpayer from making a payment when due, filing a return on time, or otherwise complying with an obligation under the act include, but are not limited to, the following examples:
Natural or human-made disasters, such as flood or fire
Civil disturbances or disruptions in services, such as a postal strikes
Serious illness or accident
Serious emotional or mental distress, such as death in the immediate family"
Unfortunately, this is a scenario our Senior ProAdvisor, as seasoned tax specialist, sees too often. "Because CRA reviews are handled by a separate office than CRA collections, if the file is not processed correctly internally, the left hand is sometimes unaware of the right." he remarked.
"In my experience, it takes time and effort to set these things straight with CRA. Collections can be very demanding, since their focus is to collect monies that a CRA agent has deemed owing. The amount owing is not to their discretion. To stop the collection process, in the case of the Mannis family, there will be several phone conversations with the Tax Agent, and CRA Collections. This is not an overnight fix. Unfortunately, this is a costly endeavor. Individuals dealing with CRA will either spend valuable personal time or be forced to pay professional fees to gain resolution." cautioned our ProAdvisor.
The service at CRA has come under recent scrutiny by CFIB. Long wait times, and incorrect answers are part of the frustration for most taxpayers. "Our clients, even with the best intentions, get easily 'lost in the system' not knowing where to turn for resolution. It's good to have a guide with you during those stressful times. We try to be that guide for our clients."
Our ProAdvisor gives the following tips for taxpayers like the Mannis’
Review your income tax returns!:
A quick overview is a good idea when using professional tax preparation services. If you don’t understand what you are looking at, don’t be afraid to ask questions. Your signature on your T1 return indicates that you believe the contents accurate and correct. Ultimately, mistakes will be your responsibility to correct.
Know your tax payers rights:
Refer to the CRA website when in doubt of of your obligations and rights. This is the most up-to-date, and indisputable information available for taxpayers.
When there is trouble, don’t delay:
It’s easy to put the brown envelopes aside and “bury your head in the sand”. Ignoring CRA communication can do more damage. Tackle issues early! Call on a professional for guidance if you have questions. No matter the situation at hand, a prompt reply to CRA means less headache later.
Act with kindness and respect:
Remember, the CRA agents and collectors are simply doing their job. Despite the frustration, errors are not personal or intentional - at least they should not be. If you feel that you’ve been treated unreasonably or unfairly, you can begin with speaking with a supervisor, and if further action is required for fair resolution, you can make a formal service compliant: https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/make-a-service-complaint.html
PROADVISOR TIP: When escalating a dispute, the best course of action is to start with the supervisor and or manager - the formal registered service complaints are time-consuming and costly for all parties. If a problem can be respectfully resolved through the supervisor or manager, everyone saves precious time and resources.
Don’t “go it alone” if you don’t have to:
Our ProStrata-G ProAdvisors are experienced in dealing with CRA agents and collectors. They are ready to walk shoulder-to-shoulder with you when interacting with the government.
Take a proactive approach:
Sadly, many of these stressful situations with CRA can be avoided completely. Our ProAdvisors know the importance of accuracy, and communication with our clients in mitigating time-consuming and stressful interaction with CRA. We encourage small businesses and individuals to understand their tax obligations and rights, and that they take the time throughout the year to communicate with their bookkeepers, accountants and tax preparers.
ProStrata-G Certified ProAdvisors are experienced in dealing with the Canada Revenue Agency, and work shoulder-to-shoulder with owners in creating accurate, up-to-date and tax compliant books. Contact a bookkeeping expert today. www.prostratag.ca or 204-505-1344