There has been a not-so-subtle change in the way the Canada Revenue Agency deals with information contained in their massive databases when it conflicts with what is reported on your income tax return. In the past, you would typically receive a letter from the CRA detailing the nature of the discrepancy, and asking you to respond as to whether or not the information they had on file was correct. Recently, what I have been seeing more and more is that they will simply issue an assessment based on the information at hand without first requesting any input. I expect the main reason for this is the sheer amount of information that they now have available to automatically compare with what you have filed has increased dramatically over the past few years, making such niceties as preliminary letters expensive and impractical. The upside of all this automatic assessing is that a large amount of tax that is legitimately owed is now being assessed and collected in a more timely manner. In the past, if a taxpayer missed reporting certain revenue it would often take years before the CRA picked up on it – if ever. They relied on a combination of random audits, variance analysis and a very slow manual matching process that might or might not result in assessments before tax returns became statute barred.
The downside is that in many cases, the information included in the CRA’s files is either wrong, or more likely has already been reported – just not exactly where the CRA’s computers expected to see it. I have seen this happen several times this year where taxpayers have joint investment accounts, but only one social insurance number is indicated on the tax information slip.
While you do of course have the opportunity once assessed to provide additional information to the CRA to clear things up, unfortunately many taxpayers (and in my experience particularly seniors) do not do this, especially in circumstances where the assessment is reducing a refund as opposed to increasing or creating a payable. Since the CRA is only issuing this type of assessment when it is in their favour, there is a huge potential for taxpayers being unfairly overcharged.
The important message to take away from this is that if you do receive an assessment that differs from what you have filed, do not assume it is right! If you have had your return prepared by a professional, ask them to review the discrepancy. Most professional tax preparers will not charge you extra for this (though you should ask if you are not sure). If you have filed the tax return yourself, make sure you understand the assessment, and if you disagree with it, call the CRA to explain your case.
My hope is that as more of these assessing issues are brought to light, the CRA will refine their assessing practices so that more confidence can be place is the assessments that they issue.