“A review is simply a request for additional information to support a deduction or a credit in a tax return. An audit is a full-blown inquiry into a return. The scope is usually more than a year where a review is very specific and usually deals with only one or two deductions or credits and is just part of CRA’s normal routine for checks and balances.”
One of the reasons for these letters being sent?
We live in an age of electronically filed tax returns. As a result, Schechter reminds WP that the CRA gets absolutely no supporting documentation on a significant number of those 25 million returns.
What are the big red flags at the CRA?
“Definitely, allowable business investment losses [ABILs]. Anytime an individual claims a loss on shares or debt of a small business corporation, that’s likely to get looked at, and asked for additional support.”
Other examples include tuition education tax credits, large donations of cultural property, child care receipts and foreign tax credits.
“Most brokers provide a good tax package,” says Schechter. “From an advisors perspective, the sooner they get that information to their clients, the better. What a lot of advisors have done is they’ve also indicated what slips are outstanding, etc. and that’s been good.”
So, who gets reviewed?
“There’s no one individual who always gets reviewed. I think if you’ve been reviewed once than you’re likely to be reviewed in the future. However, most of these reviews are very simple and can be handled immediately with a minimum inconvenience for clients.”
The most important piece of advice according to Schechter is don’t panic. Most of the CRA’s requests are harmless.