Year End Adjustment for Prior Filed Errors and Omissions

Evelyn Jacks

Cash strapped? At year end, it’s always important to review prior filed or omitted returns to make sure all the tax refunds, credit and benefits all the taxpayers in a family are entitled have been claimed.  But there are some specific rules to take note of.  Check them out here:

Requests for adjustments to prior filed returns will not be granted, if

• it is reasonable to conclude the requestis being made for “retroactive tax planning purposes”
• there are no adequate records
• it is reasonable to conclude the taxpayer was negligent in not filing or making the original claims.

Normally tere is a three year limit for the claiming of tax refunds for individuals and graduated rate estates (GREs).  It is possible to request to file a late return, from the end of the tax year in which the return is required to be filed or in the case of an adjustment request, from the date of the original notice of assessment or reassessment for a previous tax year.

However, the tax department can amend returns or accept late filed returns within 10 years from the end of the calendar year in which the tax year or fiscal period at issue ended.  Specifically, it is possible to request:

• cancellation or waiver ofpenalties;
• acceptance of a late, amended, or revoked income tax election; or
• issuance of a refund or adjustment beyond the normal three-year period

The 10-year limitation period rolls forward every January 1.  That’s why it’s important to file an adjustment request to the 2013 tax return by December 31, 2023. 

Deductions and Credits on the T1. Taxpayers may request adjustments to their returns to increase refunds or decrease amounts due if this result would have happened if the return was filed on time and the adjustment is correct according to the Income Tax Act.  This includes adjustments for most missed deductions or credits except for “permissive deductions”. 

Permissive Deductions.  Permissive deductions like CCA and business expenses are restricted to thetime period allowed for filing a Notice of Objection (which is generally 90 days from the Notice of Assessment or Reassessment, unless there are adjustments that result in no change to the tax outcomes (for example, the reclassification of property or certification of property by the CRA).

Adjustments to Refundable Income-Tested Tax Credits. It’s also possible to correct errors and omissions for a variety of refundable tax credits, and that’s important because these are tax free benefits available from the government to supplement low and middle-income families.  They include:

• Canada Child Benefit (CCB) payments

• Canada Working Benefits (CWB - formerly working income tax benefit (WITB)and the disability supplement available under this provision
• GST/HST credits;
• Refundable medical expenses supplement

Taxpayers with Balances Due.  For those who owe money to the CRA, the department may also, at any time waive or cancel all or any portion of any penalty or interest otherwise payable under the Income Tax Act. According to CRA IC 07-1 extraordinary events that may give rise to the cancellation of penalties and interest include:

• natural or human-made disasters,
• civil disturbances or interruptions in service, such as a postal strike,
• serious accident or illness,
• serious emotional or mental distress, such as a death in the family,
• processing delays at CRA which result in the taxpayer not being, informed within a reasonable time frame that taxes were owing,
• published materials available to the public from CRA containing errors that led to the incorrect filing of a tax return,
• incorrect advice that was received by the taxpayer from a CRA employee, including that instalment payments were not required when in fact they were,
• errors in processing of the return,
• when CRA has suspended collection activities because of an inability on the taxpayer's part to pay,
• when the taxpayer cannot make a reasonable arrangement to repay because the interest charged absorb such a large part of the payment. In these cases CRA has the authority to waive interest until taxes are caught up.

How to Make an Adjustment.  For those who electronically filed an income tax return, through NETFILE or EFILE, it is possible to use a service called ReFILE, to send adjustment requests to the government for 2022, 2021, 2020 and 2019 returns.

CRA notes on its website, however:  “Our service standard is to issue your notice of reassessment, or a letter explaining why the CRA did not make the changes you asked for, within 2 weeks of receiving your adjustment request.  It applies to straightforward taxpayer-requested adjustments only. It does not apply to complex requests. Complex requests include situations where more information or additional verification is required. Our goal is to issue your notice of reassessment or a letter within 20 weeks of receiving your adjustment request.”

How to make a Difference.  Have you filed every tax return for 2013 to 2022?  If you have missed one file it now to recovered missed refunds and refundable tax credits.  If there has been an error or omission in each year in the period, especially missed medical or disability credits or deductions for child care, employment expenses or moving expenses, or a lack of optimization for charitable donations or pension income splitting for example,  a substantive refund may be coming your way.  But remember, in case CRA requests it, documentation must be available.

Learn more in the new CE Savvy-PD™ Micro-Course Collection: New Issues in Year-End Planning