When and how to dispute your 2020 Notice of Assessment - Akler Browning LLP

By now, most Canadians have filed their income tax returns for the 2020 taxation year. Specifically, by May 17, 2021, the Canada Revenue Agency (CRA) had processed just under 27 million individual income tax returns filed for 2020. Just over 16 million of those returns resulted in a refund to the taxpayer, while about 6.6 million taxpayers received a bill for additional taxes owed.

No matter when or how a return is filed, or the outcome of the filing, all returns filed with and processed by the CRA have one thing in common — they result in the issuance of a Notice of Assessment (NOA) by the CRA, outlining the taxpayer’s income, deductions, credits, and tax payable for the 2020 tax year.

In most taxation years, the information contained in the NOA is usually the same as that provided by the taxpayer in his or her return, perhaps with a few arithmetical corrections made by the CRA. However, it’s likely that more than the usual number of returns filed for the 2020 tax year will result in some disagreement between the taxpayer and the CRA. Millions of Canadians received pandemic-related benefits (particularly the Canada Emergency Response Benefit (CERB) during 2020 and not all benefit recipients were aware that such benefits represented taxable income which had to be reported on the return for 2020. Consequently, many such taxpayers may receive an unpleasant surprise when the information presented in the NOA differs from that provided by the taxpayer in the return, and that difference includes additional tax amounts owed. When that happens, the taxpayer has to figure out why, and to decide whether or not to dispute the CRA’s conclusions.

Quite often such discrepancies are the result of an error made by the taxpayer in completing the return. A lot of information from a variety of sources is reported on even the most straightforward of returns and it’s easy to overlook (e.g., a T5 slip reporting a small amount of interest income earned). Even where tax software is used to prepare the return, errors can still occur. Such tax software relies, in the first instance, on information input by the user with respect to taxable amounts found on T4, T5, and other information slips. No matter how good the software, it can’t account for income —like pandemic benefits — which the taxpayer hasn’t input. In other cases, the taxpayer might transpose figures when entering them, such that an income amount of $26,353 on the T4 becomes $23,653 on the tax return. Once again, the tax software has no way of knowing that the information input was incorrect and calculates tax owing based on the figures provided.

Where there is additional tax owing because of an error or omission made by the taxpayer in completing the return (including a failure to report pandemic benefits received as income), and the CRA’s figures are correct, disputing the assessment doesn’t really make sense. There is, as well, a persistent tax “myth” that if a taxpayer doesn’t receive an information slip (T4 or T5, as the case might be) for income received during the year, that income doesn’t have to be reported and therefore isn’t taxable. The myth, however, is just that. All taxpayers are responsible for reporting all income received and paying tax on that income, and the fact that an information slip was lost, mislaid, or never received doesn’t change anything. The CRA receives a copy of all information slips issued to Canadian taxpayers, and its systems will cross-check to ensure that all income is reported — and done accurately.

There are, however, instances in which the CRA and the taxpayer disagree over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s tax credit claim for a dependant, or for a deduction claimed for moving expenses, which the taxpayer believes to be legitimate.

Whatever the nature of the dispute, the first step is always to contact the CRA for an explanation of the reasons why the change was made. While the information provided in the NOA is a good summary of the taxpayer’s tax situation for the year, it may not provide the detail needed to show precisely how and why the taxpayer and the CRA disagree on the actual amount of income tax which the taxpayer must pay for the year. The first step to be taken would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281, where agents who have access to the taxpayer’s return can explain any changes which were made during the assessment process. If that call doesn’t resolve the taxpayer’s questions, or there is still a disagreement, the taxpayer must decide whether to take the next step of filing a formal objection to the NOA.

Doing so formally advises the CRA that the taxpayer is disputing his or her tax liability for the taxation year in question. Not incidentally, the filing of an Objection also halts, in most cases, collection efforts undertaken by the CRA to collect taxes which it considers owing for the taxation year under dispute (although, if the taxpayer is eventually found to owe the amount in dispute, interest will have accumulated in the interim). Where the taxpayer files an Objection, the CRA’s collection efforts are, in most cases, suspended until 90 days after the date the CRA’s decision on that Objection is sent to the taxpayer.

There is a time limit by which any Objection must be filed, albeit a reasonably generous one. Individual taxpayers must file an Objection by 90 days from the mailing date of the NOA (the date found at the top of page 1) or one year from the due date of the return which is being disputed, whichever is later. So, for tax returns for the 2020 tax year, the one-year deadline (which is usually, but not always, the later of those two dates) would be April 30, 2022 (or June 15, 2022 for self-employed taxpayers and their spouses). As with most things related to taxes, it’s best not to put it off. At the very least, if the taxpayer is ultimately found to owe some or all of the taxes assessed by the CRA, interest will have accrued on those taxes for the entire period since the filing due date. Certainly, if the deadline is imminent, it is necessary to file a Notice of Objection in order to preserve the taxpayer’s appeal rights, even if discussions with the CRA are still ongoing.

Taxpayers who have registered with the CRA’s online services feature My Account can file their Notice of Objection online at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html. The taxpayer provides information with respect to the assessment being disputed and the reasons why that assessment is being disputed, and submits those reasons online. Taxpayers who are disputing their tax assessment can also upload supporting documents relating to that dispute to the CRA’s website.

While filing a dispute through My Account is certainly faster than mailing hard copy of the Notice of Objection, not all taxpayers want to use that option. In particular, those who are not already registered with My Account may not wish to undertake the registration process simply in order to file a single Notice of Objection. Taxpayers who choose instead to mail hard copy of a Notice of Objection can find the most current version of the CRA’s standardized T400A Objection on the Agency’s website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t400a/t400a-09-18e.pdf.

Taxpayers are not obligated to use the CRA’s official Notice of Objection form — any communication which makes it clear that the taxpayer is objecting to his or her NOA will do. Nonetheless, there’s no reason not to use the standardized form, and there are benefits to doing so. Using the Form T400A will make it clear to the CRA that a formal objection is being filed, will present the necessary information in a format with which the CRA is familiar and will also mean that no required information is inadvertently omitted. It is also helpful to include a copy of the NOA which is being disputed. Taxpayers should also consider ensuring proof of both delivery and time of delivery by sending the form in a way which provides for tracking and proof of delivery (e.g., registered mail or courier).

Notices of Objection are sent to an Appeals Intake Centre, and the mailing address to which the Objection should be sent is provided on the NOA form. It’s also possible, once an Objection is filed, to call the Objection enquiries toll-free number at 1-800-959-5513 to obtain information on the current status of the Objection.

The time required for the CRA to consider the Objection and make its decision ranges from several weeks to several months, depending on the number and complexity of the issues involved. The CRA website indicates that, as of April 2021, most individual NOAs involving straightforward issues (which would comprise almost all such NOAs) are being resolved within an average of just over 3 months.

In the course of coming to its decision, the CRA may or may not contact the taxpayer for further discussions of the issues in dispute. Should the taxpayer be contacted, he or she may be asked to provide representations outlining his or her position, in writing or at a meeting. Through such representations and meetings, it may be possible for the taxpayer and the CRA to come to an agreement on the taxpayer’s tax liability. In either case, the CRA will either confirm its original assessment or change it. If the original assessment is changed, the CRA will issue a Notice of Reassessment outlining the changes. If the taxpayer continues to disagree with the CRA’s position, the next step is an appeal to the Tax Court of Canada, which must be filed within 90 days after the CRA issues its assessment or reassessment. While in many instances (generally where amounts in dispute are relatively small) taxpayers can represent themselves before the Tax Court, it’s generally a good idea, once things reach this point, to consult a tax lawyer before taking that next step.

The CRA also publishes a useful pamphlet entitled Resolving Your Dispute: Objection and Appeal Rights under the Income Tax Act, and the most recent release of that publication can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p148.html. More information on the objection process is also available on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/file-objection-cppei-appeal-minister/income-tax.html.