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2. What the CRA Knows about You
ОглавлениеThe CRA knows a great deal about taxpayers because it keeps extensive and detailed records. Like a giant computerized elephant, the CRA does not forget recorded taxpayer information, and as its databases and computer systems become more sophisticated over time, it is better able to use this information to its benefit — often to the taxpayers’ detriment.
A taxpayer must trust that the CRA will use every piece of information at its disposal against a taxpayer. When it comes time to freezing a taxpayer’s bank account, the CRA remembers each payment made and the financial institution from which the cheque was drawn; when it comes time to granting (or denying) a request for taxpayer relief, the CRA will be able to point to that time 20 years in the past where the taxpayer was late on filing his or her return by a day, and will use this delinquency as a basis to deny relief which theoretically is guaranteed as a right.
Some personal information that the CRA has in its database comes directly from taxpayers. Every time you file an income tax return with the CRA, the information from your returns becomes part of the permanent record. If you are audited, the CRA learns more about you and adds this information to its database. If you speak to the collections officers, they take detailed notes which are also added to your record. The CRA knows when you have made payments, the promises you have broken, and the financial institution you use to pay your taxes.
The CRA also obtains information passively from a taxpayer’s employer. For example, whenever an employer provides a taxpayer with a T4 slip, the employer also sends that information to the CRA. So whether or not you have filed your tax return, the odds are that the CRA knows how much income you have earned.
Through information requests and periodic checks of taxpayer credit reports, the CRA can obtain a whole host of additional information about a taxpayer, his or her assets, and his or her financial transactions from employers, clients, financial institutions, accountants, and other third parties. All the information that the CRA has obtained, whether passively or actively, will be used to ensure that it has extracted the right amount of taxes from a taxpayer.
While the CRA is fairly diligent in its information collection and processing, in some cases, the CRA has incorrect information about a taxpayer, and in the course of an audit or an objection to a reassessment, the taxpayer may be put in the position where he or she has to use his or her own documentation to prove the CRA is wrong. When reassessments or assumptions of the CRA auditors are incorrect, a taxpayer’s ability to produce correct documentation can greatly impact his or her financial future, and in the case of a business, its success or failure. As such, it is imperative that both individuals and business owners are in the position to properly dispute incorrect reassessments by producing the necessary documentation.
According to item one of the Taxpayer Bill of Rights, taxpayers have the right to receive entitlements and pay no more and no less than required by law. However, if the CRA has the wrong information, and attempts to assess taxpayers for more than is required by law, taxpayers must be ready to challenge the CRA’s interpretation and application of the facts and law to ensure that they are not paying more than their fair share. This is the burden of the taxpayers, and once the CRA assesses taxes, they are assumed to be correct unless it is proven otherwise. If a taxpayer waits too long to make the challenge, the assessment is set in stone and is not subject to being changed — no matter how incorrect it is.
It must be kept in mind that irrespective of the fact that the CRA is assumed to be correct, notices of reassessment which appear to be incorrect are not necessarily an indication that the taxpayer, or his or her accounting professional, has done something wrong. Often the CRA makes a mistake, which stems from a faulty assumption or incorrect documentation about a taxpayer. In order to uphold a taxpayer’s right not to pay more than he or she is required to by law, it is crucial to understand the CRA’s system for maintaining information on taxpayers (see section 2.1).
In 2009 and 2010, the CRA audited approximately 380,000 small- and medium-sized businesses and issued notices of reassessment requiring these businesses to pay $2.1 billion in additional tax, interest, and penalties. In many cases, these reassessments could have been challenged, and the tax payable could have been reduced by providing the proper documentation.
While most returns are processed by the CRA without manual review, as to ensure the taxpayer’s timely receipt of notices of assessment, it must be kept in mind that every return is in fact screened by the CRA and is susceptible to later review. Amazingly, the processing time is usually between two to six weeks for the 25 million returns filed yearly in Canada.
Practically every tax lawyer who has dealt directly with the CRA will agree that unless dealing with the simplest of issues, resolution is never simple. There are factors that aggravate the complexity of dealing with the CRA, such as understanding the Income Tax Act (ITA), a very complex statute, as well as dealing with the CRA. The CRA is comprised of a massive administrative body, which can make it unreasonable for a self-represented taxpayer to expect a simple resolution to his or her tax problems — especially without proper record keeping.
The following sections discuss the types of information the CRA collects about the taxpayers.