Advisors help protect clients from CRA review

Clients facing a CRA review often look to lay blame somewhere – but advisors using the right kind of software rarely have anything to worry about, says one tax expert.

Advisors help protect clients from CRA review
A Toronto taxation expert tells WP what advisors can do to ensure what can be a stressful time of year for clients doesn’t become worse. 

When people think of the Canada Revenue Agency they generally picture themselves in a small room in some government building being questioned about this deduction or that tax credit – the dreaded tax audit. 

More than 25 million Canadians will submit a tax return this year. What do they have in common? 

Many will be selected for a review by the CRA, a targeted process based on risk assessment where certain factors make a review more likely. WP discussed with Aaron Schechter, a partner with Toronto-based Crowe Soberman LLP, the things advisors can do for their clients that lessens the chance of getting a review letter from Ottawa.

“Brokers should use the best reporting software possible so that they can keep track of things like cost basis, paid-up capital, historical foreign exchange, and foreign income verification,” says Schechter. “With the T1135, I’ve seen some brokers with good reporting software that will provide all the information that taxpayers need to complete the T1135 well.”

But whether clients receive a letter or not, Schechter explains there’s nothing to fear. 

“Remember, a review is different than an audit,” he says Schechter.

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“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. 

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