When a $14,000 tax refund arrived one day, not long after he filed his 2010 taxes, James McDonald was tempted to cash it. But only for a second. That's because he suspected the Canada Revenue Agency (CRA) didn't owe him one.
"They sent me a nice big cheque," says the Toronto resident. "You know how you get those Chance cards in Monopoly: 'Bank Error in your Favour'? That wasn't the case here."
"I knew it probably wasn't right."
After rechecking his return and consulting with his tax preparer, Mr. McDonald called the CRA to let it know he was sending the cheque back. After an internal review, the agency realized a keying error had altered the amount in his EI Insurable Earnings box by a few decimal places, and that the cheque should not have been sent out.
"It all worked out," says Mr. McDonald.
Reading all documentation the CRA sends you – especially tax assessments – is a wise policy, especially in the rare cases when the CRA makes a mistake, says Cleo Hamel, a senior tax analyst with American Expat Services in Calgary. "If you're used to getting a $300 refund year over year and you get $400 – take a look at it," she says. "It's always a good idea to go through it." And if a figure is radically different than what you feel it should be, "you should always question it."
Plus, she says, the onus is always on the taxpayer to fix the problem – even if the CRA has made the error. "It's all up to you," says Ms. Hamel, "to prove who is right and who is wrong" – whether that involves repeated calls to inform the CRA of the error, or contacting the agency via mail. "You have to look after yourself," she says.
Failing to take action can be dire. James Bell, a Toronto-based former CRA auditor, sees what happens to ordinary Canadians who don't have happy endings like those of Mr. McDonald.
He tells of one client who the CRA thought owed them money; his relative had a lien mistakenly put on his house because the two men shared the same last name. Others have had their wages garnisheed or bank accounts frozen before a mistake is reversed. Most of his clients arrive at his office, Tax Solutions Canada, when the CRA has already taken action and they have no access to their funds.
He chalks it up to the current political and economic climates; In April, Ottawa announced it was investing $444-million in the CRA to crack down on tax cheats who stash their money in offshore accounts.
"There's an enormous amount of uncollected debt in Canada," says Mr. Bell. "Collections is under a great deal of pressure to turn that accounts receivable into cash. Some of the more wealthy, better-represented taxpayers out there are protected by various corporations and organizational structures. But for the average Canadian, they can hammer away at you very quickly."
"The CRA tends to assume the worst for the taxpayer," says Duane Milot, a tax lawyer at Milot Law, adding that he's seeing a higher number of audits and "there's a higher interest in offshore income. They're going after certain professionals that they hadn't before."
"The CRA is being very aggressive and levying large penalties. Taxpayers need to be vigilant."
Mr. Milot says that if a person discovers the CRA has made a mistake on their taxes, they need to file a notice of objection to the Income Tax Act within 90 days of the date of the assessment – which is done by filling out form T400A either in hard copy or online. It's not enough to get a verbal confirmation on the phone, he says. And during that 90-day period, collections is not allowed to call, to allow the taxpayer time to disagree with the assessment.
The CRA concurs. "The first step a taxpayer should take if they do not agree with an assessment is to submit an adjustment request either online through My Account or by mail," said Lisa Damien, a CRA spokesperson. "If the taxpayer still disagrees and believes that the CRA may have misinterpreted the facts or applied the law incorrectly, they have the right to object to their income tax assessments."
Failure to object means a taxpayer has little recourse going forward. If the CRA concludes it did nothing wrong, the taxpayer will be expected to pay up. "If they disagree with you, you won't have legal rights," says Mr. Milot. He adds that taxpayers have one year from the expiry of the 90-day period to request an extension of time to file the objection.
The good news is that once the form is filled out, you shouldn't be contacted for payment. "Once the objection is put in place, collections should stop calling," says Mr. Bell. He says at that point the appeals division is obligated to review the assessment.
"Appeals will call in a year," says Mr. Milot, after the objection is sent.
If the CRA decides it did nothing wrong, there's always the Tax Court of Canada, where a decision can be appealed, says Mr. Bell. This usually involves hiring a tax lawyer and ponying up more money. In the best case scenario, the assessment will be corrected and the interest refunded. Don't expect an apology, the experts warn.
But Mr. Bell says that taxpayers unhappy with how they've been treated – such as being harassed by collections or not getting enough information – can also contact the CRA's ombudsman once they've voiced their complaints to CRA agents and their supervisors, lodged a service complaint and not had any resolution.
"Don't be afraid of the CRA," says Mr. Milot.
Editor's Note: An earlier version of this story said "that if the 90-day period is missed, taxpayers have one year from the date the tax return was filed to request an extension of the objection filing period." It has been changed to say that "taxpayers have one year from the expiry of the 90-day period to request an extension of time to file the objection."