In early 2015 the Canada Revenue Agency (CRA) will be sending approximately 33,000 letters to selected taxpayers in early 2015. In 2010, the Canada Revenue Agency (CRA) began a letter campaign to inform selected taxpayers about their tax obligations and to encourage them to correct any inaccuracies in their past income tax and benefit returns.The CRA will send about 33,000 letters to randomly selected taxpayers who claim business or rental losses or are employees who claim employment expenses on line 229 of their tax return. First of all if you receive a letter don’t panic, don’t be upset and don’t take it personally. Don’t leave the letter there unopened. That won’t help anything. Most taxpayers such as you are honest but inevitably CRA has to send a lot of letters to honest people first before they find a minority of those who were not so innocent.
If you are a You First client just contact us as we can advise you as to how to properly respond to the letter and will in most situations be able to take care of preparing the reply for you. In most cases CRA is simply looking for documentation to substantiate your claims or to determine the reasonableness of your expenses. For example if you are depreciating the cost of a new car on your business expenses surely CRA is justified in determining whether or not you actually bought a new car. Or maybe you claimed over $5,000 in meal and entertainment expenses for your business even though you had only $20,000 of income. On the surface this may seem excessive but perhaps your business is the type that requires the cultivation of a great many prospects. Canada Revenue merely has the duty to determine that the expenses claimed on your tax return are legitimate.
On a personal note and from 23+ years of preparing tax returns we have seen only one single letter that required more than just the basic amount of verification to Canada Revenue. This was a situation of a client who had reported a $2,186 rental loss on a new apartment in his house. While not overly complicated the response to the letter required the client to provide information on the size of the apartment in relation to the overall house; the name of the tenant; a projection as to when profitability would be achieved; and they asked for copies of the maintenance receipts. That was all that CRA wanted. A few weeks later the client received another letter from CRA to say that all was fine and then that was the end of it. See nothing to worry about.
So if you receive one of those CRA letters don’t worry. They just want to see how honest you are !