June 29, 2005

Blurb: Although the filing deadline has passed, tax season only truly ends when you get your CRA assessment. That is, unless you want to contest it.

Contesting your tax assessment

By Peter Diekmeyer o Bankrate.com

With this year's filing deadline well behind us, you'd think that Sonny Barnard would be on the golf course. Barnard is a chartered accountant who specializes in tax issues. And like most experts in the field he works long hours to help get his clients through tax season.

But one thing that Barnard has learnt from his long years of experience is that sometimes filing a tax return is just the beginning, of what can be the long process of determining how much tax you really owe.

That's because once CRA receives your return, it is reviewed and an assessment sent out. In most cases the filer accepts the results and either gets his refund or he writes a check to pay his balance owning. But it doesn't always happen that way.

"A lot of people don't realize that they can contest the assessment if they don't agree with it," says Barnard, who overseas the preparation of about more than 200 individual and corporate tax returns each year at the chartered accountancy firm of Bessner Gallay Kreisman. "Those that do contest will have their cases looked at by an independent party.'

Most common reassessment items
According to Barnard, a Canada Revenue Agency assessment can include any number of modifications to your return, ranging from disallowed deductions claimed, to inclusions of undeclared revenue sources.

With the increasing sophistication of computer systems, the CRA, major companies, banks and even foreign governments are exchanging data all the time. So don't be surprised to find the interest you received in the Florida bank account that you "forgot," about, all of a sudden appearing as revenue on your adjusted CRA tax return assessment.

Disallowed deductions are far more common among self-employed individuals and small business owners than among salaried employees, whose scope for discretion is limited. Common issues include disputed home office and travel expenses, the tax treatment of business losses and interest paid to earn income.

Medical expenses are also increasingly complex, leaving room for interpretation. For example CRA officials disallowed certain deductions related to expenses Barnard incurred in his battle with Caeliac's disease, a disorder that limits the foods that he can eat.

Filing a notice of objection
The good news is that if you disagree with a CRA assessment, you have a right to contest it. To do so, all you have to do is file a "Notice of Objection," form T-400A, (http://www.cra-arc.gc.ca/E/pbg/tf/t400a/README.html) which is available on Canada Revenues Agency's Web-site. Or if you prefer you can just write a letter. A Notice of Objection must be filed at the latest of one year from the filing date of your return or 90 days from the mailing date of your assessment.

The Notice of Objection goes to the CRA's appeals department where an independent officer will review your file and will notify you of his (or her) decision. You will usually be given the opportunity to meet with the officer and his or her boss in order to explain your position. "Generally speaking they have a good grasp of the issues," says Barnard. "So you will likely get a fair share."

Another common claim filed by taxpayers is under the CRA's fairness policy, (http://www.cra-arc.gc.ca/agency/fairness/fair-prov-e.html), which give taxpayers right to ask for relief in specialized instances. These include circumstances when a taxpayer was victim of illness, natural disaster or other unfortunate events. "CRA looks at each case individually," says Canada Revenue Agency spokesperson Beatrice Fenelon. "And (officials) can cancel interest and penalties if the case warrants."

Contesting your Notice of Objection ruling
If your Notice of Objection was refused by CRA, you have the option of taking the case even further, by appealing the decision to Federal Tax Court. To do so, you will need to retain a lawyer. It will generally take between 18 to 24 months to get your case heard in Federal Tax Court, using the traditional process, and there will be lots of fees to pay. If you lose the case, you'll have to pay interest on the taxes and whatever penalties you owe.

That means unless the amount of money disputed is fairly high and you feel pretty good about your chances of winning, you should probably try to avoid going to court. "We are the undertakers of our firm," jokes Aaron Rodgers, a tax litigation expert at the law firm of Spiegel Sohmer Inc. "Nobody wants to deal with us."

That said, despite the generally accepted competence of CRA officials, they are far from infallible. "They know their stuff," says Rodgers. "But they are bound by CRA's internal policies, which may or may not be in accordance with the law."

According to Rodgers, only one or two of Spiegel Sohmer's 12 tax lawyers can really be said to specialize in full-time tax law litigation. That's because when it comes to taxation, --as in health, -- prevention is better than a cure. "If you think you have a tax issue that could be contested, you should get professional advice right away," says Rodgers. "It will to save a lot of money ion the long run."

For more information, CRA has a useful publication titled "Your appeal rights under the Income Tax Act," which is available online at: http://www.cra-arc.gc.ca/E/pub/tg/p148/README.html


Peter Diekmeyer (www.peterdiekmeyer.com) is the Montreal Gazette's management columnist.



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