What is the "real cost" of dealing with Canada Revenue Agency?
Note: The names and details have been changed to uphold privacy.
Ken and Mary run a small business and spent more than a year replying to Canada Revenue Agency's "Requests for Information" regarding their 2016 and 2017 taxes. "Hours of lost time, consultation fees, and several nights of lost sleep", Ken quotes as the "real cost" of defending their legitimate business expenses.
Mary begins to explain, "We received a letter asking for proof of our business expenses. The list of requirements was quite long. A few pages anyway." They knew it would take time to prepare and send the documents requested by CRA. Ken and Mary, pulled up digital mileage log books, searched for receipts and invoices. "The task was very daunting. We had a lot to do." said Ken.
Ken and Mary were asked to prove $43,000 in expenses. If unable to provide the requested source documents to CRA, they would be re-assessed as owing the same amount in tax, plus penalties and interest. They went to work gathering everything they needed. Mary estimates she spent more than 20 hrs printing digital files, such as the extensive 2000 page vehicle mileage log, and organizing their response.
"I thought we had supplied everything, and there would be no further issues." Months later, Ken was taken aback by a letter from CRA stating the documents the couple supplied were not organized in a way that CRA could verify the information. "I was very confused. I had supplied everything they asked for, in great detail."
After a few sleepless nights, they engaged a ProStrata-G ProAdvisor for Audit Representation after being referred by a colleague. "We don't regret that decision." the couple said, almost in unison.
Their ProAdvisor, after a few interactions with the CRA examiner, and re-organizing documents, and completing response letters, was able to help prove the couple's expenses, and close their CRA file. In the end, Ken and Mary were re-assessed as owing $3000 of additional tax. "I was pleased with that! It was a far cry from the $43,000 we were looking at, initially. My only regret is not turning the professionals sooner." said Mary.
ProStrata-G ProAdvisors suggest the following when dealing with CRA:
Keep a Cool Head
It sometimes feels personal, but it's not. Random checks, ensure the tax economy runs smoothly - in fact, this is how the tax system is intended to work. As per the CRA website "Canada's tax system is based on the self-assessment principle which means that you have to complete a tax return each year to report your income and calculate whether you owe tax or receive a refund. The self-assessment tax system is considered the most economical and efficient way to collect tax." To ensure honesty, CRA reviews random returns, and has a specific criteria that trigger reviews.
Understand your Tax Payer's 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.
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/manager - the formal registered service complaints are time-consuming and costly for all parties. In fact, due to COVID, the CRA is even further behind, with one CRA agent mentioning that most service complaints take 1.5 years to resolve. If a problem can be respectfully resolved through the supervisor or manager, everyone saves precious time and resources.
Provide Requested Information on Time.
The Canada Revenue Agency will provide a deadline for response. Do not miss this deadline! If you require more time, contact the examiner and request an extension. Review the common documents requested by CRA here.
Understand the Audit Process
Part of the panic many taxpayers feel is due to fear of the unknown. By understanding the step by step process, dealing with an examiner will feel less overwhelming. For a brief overview, check out ProStrata-G's audit chart.
Keep Your Originals
Provide copies whenever possible. Although it doesn't happen all the time, packages and mail can sometimes get lost or sent to the wrong department. Tracking a package within CRA is nearly impossible. If they’re lost or destroyed, the CRA can say you never provided them. Always make copies!
Communicate in Writing When Possible
Request communication in writing and avoid verbal exchanges where possible. Record telephone conversations if necessary (be sure to advise anyone you speak to that the conversation is being recorded). Take detailed notes for reference.
Provide Only the Information Requested
Think before you speak, and only provide the answers requested. CRA examiners do not assume guilt, however, anything you say could be used against you. Also, it will not help if you overwhelm your examiner with unneeded information.
Don’t “Go it Alone” if You Don’t Have to
Our ProStrata-G ProAdvisors are experienced in dealing with CRA examiners and collectors. They are ready to walk shoulder-to-shoulder with you when interacting with the government.
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 204-594-4214