Audit-Ready Files: When Can a Tax Return be Adjusted?

Evelyn Jacks

Looking for extra money to fund rising costs?  The tax return is one such source, especially because it is possible to reach back and correct errors and omissions from the prior 10 years to generate a tax refund.  However, there are certain limitations when it comes to the deduction for CCA (capital cost allowances) and other permissive deductions. Notably, CRA has not changed its rules on this matter since 1984.   In this feature, Part 1, we’ll discuss how to adjust a return. Part 2 will discuss the specific rules concerning CCA.

How to Adjust Tax Returns Online.  CCA, together with other “permissive” deductions can be revised but under special rules.  For most changes, it is a matter of going to Change My Return and make an online adjustment request.  When can you not claim the adjustment request online?  Specifically when a tax return has not yet been assessed.  Alternatively, it’s not possible if the taxpayer has made 9 reassessment requests for one particular tax year.  Other disqualifiers for online adjustments:

• When you are adjusting the Election to Split Pension Income on Form T1032;
• When you are filing a bankruptcy return; or a return for a year prior to the year of bankruptcy;
• When you are carrying back certain amounts to apply to previous years.  A good example of this is capital or non-capital losses;
• When a return is being filed for taxpayers on the move:  a deemed resident, an immigrant, an emigrant or a non-resident taxpayer.  
• When you have income from a business with a permanent establishment outside your province or territory of residence (Form T2203, Provincial and Territorial Taxes - Multiple Jurisdictions);
• When a return was filed by the CRA under subsection 152(7).  Under that subsection, the Minister may assess taxes payable if the taxpayer has not filed a tax return.

In these cases, adjust the tax return through your tax software, using the ReFile function, or by mail.

How long will it take?  According to the CRA the goal is 2 weeks for online issues and 8 weeks for a mailed request.  

Be Sure to Exercise Appeal Rights. Be sure to save the reassessment notice to preserve appeal rights, within required timelines.  For example, a Notice of Objection must be filed within 90 days from the date of the Notice of Objection or Reassessment.

Those Notices of Objection are important documents.  They can halt collections procedures.  The taxes in dispute as well as any interest or penalties do not have to be paid until the outcome of the review is established by either the CRA or the Tax Court of Canada.   When the appeal is settled however, those charges are payable and will attract normal interest charges for outstanding taxes, interest or penalties; even more important is that interest is calculated from the balance due date.

Bottom Line:  You can recover taxes and benefits due for most errors and omissions for up to 10 years – the current tax year and from 2012 forward.  However, to adjust most provincial taxes, the election to split pension income, the limit is 3 years, and for Capital Cost Allowances and other permissive deductions there are further restrictions.   In particular changes to permissive deductions like CCA are not allowed if the taxpayer has filed a Notice of Objection.

That’s a little known tax fact that underscores why working with a Tax Services Specialist and a Real Wealth Manager, who has broad and deep tax knowledge, provides high value services and opportunities to preserve both income and wealth, especially in recessionary times. 

 See Part 2 of this story, where we will discuss adjustments to CCA and permissive deductions.