What is a notice of assessment and How to Handle a request for information

While submitting your tax return is often accompanied by a sense of relief, one cannot completely relax until you receive your notice of assessment from Revenue Canada (and Revenue Quebec for those of you lucky enough to file two tax returns) which essentially a confirmation that what you have filed is fine. Taxpayers used to receive a beige envelope , until many of us signed up for online receipt (thereby saving CRA huge amounts of money on postage). Regardless of how you receive the notice of assessment, there might be a certain amount of excitement if you are receiving a refund. Conversely, you might feel less positive if you have a large bill to pay.

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What is a Notice of Assessment (aka NOA )

After you file your income tax return Revenue Canada (CRA) and Revenue Quebec (RQ) will send you an acknowledgement (somewhat like a report card) that the return has been received and a detailed breakdown of the tax return that was filed including any discrepancies. It also provides some information pertaining to future years such as limits and carryforwards. The NOA is also referred to as an “avis de cotisation” if your preferred language is French or when you receive one from RQ. Some of the information that can be found on a notice of assessment includes:

Personal income tax returns (including small business tax returns on a T2125):

• Summary of the income tax return that was filed which includes certain key line items such as total income, deductions and credits, and final tax amount payable or refund. If the return was filed late or if instalments due were not paid, you will also see interest and penalties and the date by which payment must be made to avoid additional interest. If you have a refund , a cheque will be enclosed or if you are signed up for direct deposit, there will be a notification that the refund has been deposited to your account.

• Explanation of changes from the tax return that was filed if any and other items of note such as application of capital losses, tuition credits and the Canada tax credit.

• RRSP contribution limit statement which reflects the opening balance, amounts added for the year and amounts contributed. The final amount on this statement represents the available contribution amount for the following year.

• NOAs for tax returns that are filed electronically, in recent years, are often issued immediately upon filing the return and is referred to as an express notice of asssessment. It should be noted that , even though you have received a notice of assessment, there might be a request for information or audit in the future that leads to a notice of reassessment.

• If you file your tax return by mailing it in, it can take a couple of months to receive a notice of assessment since these returns have to be reviewed manually. It is therefore best to filing electronically if possible. CRA actively encourages you to submit your tax return online and sign up for CRA my account.

• You can find NOAs for the current and previous years by logging in to “CRA my account” and “RQ my account”.

• If you are a tax preparer who accepts payment to prepare more than 5 tax returns in a calendar year are required to efile (electronically submit) the tax returns (with exceptions for tax returns that have to be mailed). Failure to do so will result in penalties of $25 for each tax return that is mailed.

Notice of assessment for Sales Tax (GST/HST and QST) Returns:

The notice of assessment for GST/HST will include the following (similar to a QST return):

• Breakdown of line items from your sales tax return.

• Payments made

• Balance due or refund owing

• Interest, either due to insufficient or late payment of instalments

• Penalties if you have filed your return after the deadline.

• A refund cheque or notification of refund if you are signed up for direct deposit.

• The identification number which ends in RT000? for GST or TQ000? if it is a QST return.

Note that sometimes you don’t receive an NOA for GST/HST or QST if there is no balance owing or refund due.

Notice of assessment for Corporate Tax Returns:

• The amount you need to pay or refund due

• The types of tax payable by line item

• Instalments paid

• Interest payable on overdue instalments and year end tax payments

• An explanation of any changes on the NOA from the tax return that was filed

• The identification number which ends in RC000? or (IC000? for Quebec corporate tax return).

The NOA can also be found by going to CRA my business account and RQ my business account

There is a lot of valuable information on an NOA so it is good to keep them at least for seven years which is the amount of time that CRA requires that you keep your tax records. The NOA also includes information that is often required to sign up for online accounts and other services.

Types of Changes to Your Tax Return on a Notice of assessment

Often you will receive a notice of assessment and it will be different from the actual tax return filed. This is mostly because CRA also receives information directly from the business and organizations that prepare the tax slips and documentation. This can then be cross referenced to tax returns filed and corrected. The types of changes that you will see include the following:

• Amounts on tax slips such as T3, T4 and T5s, RRSP contributions etc erroneously entered including income taxes deducted

• Tax slips (T4s, T3, T5s) etc that were completely omitted

• T4As, relating to self employment often (generally reflected on Box 48), that are reported as small business revenues but were not included on the tax return under the T4A category.

  Note: If you have failed to reflect your T4A - Box 48 (fees received for services) on the correct line on the T2125 but rather simply include it in the gross income line, CRA will assess you for the amount of the fees for services on the T4A and add it your income and taxes payable. Since this double counts your income, that you have already reported, you would want to file an amended tax return that shows the T4A on the correct line (so you don’t pay tax that you don’t actually owe.)

• RRSP contribution room that is erroneously calculated.

• Interest and penalties for late filing or not paying instalments

Request for Information/Audit

There is always a chance that you will receive a request for information or an audit, especially when you have slightly more complex items on your tax return. Requests for information can be stressful and sometimes difficult to understand ( the explanations are often insufficient and/or confusing). If you had an accountant file your tax return, it is a good idea to consult them upon receipt of an assessment. If you filed it yourself, and do not understand the assessment, you should call CRA or RQ and request an explanation. They are usually eager to help, if not always illuminating. If you still do not understand it or feel that there has been a misunderstanding, it is probably best to  find an accountant help you decipher it.

• The most common requests for information for individual taxpayers usually relate to documentation and evidence of donations, medical expenses, daycare expenses and other tax credits/deductions that have been claimed for which CRA wants to see proof. (since original documents are no longer sent in with the tax return when they are e-filed).

• Small businesses might get asked for copies of bills and receipts, sales invoices etc. relating to a specific expense category on their income tax returns. For GST/HST and QST, if the amounts claimed on expenses is high or if you are claiming a sales tax refund you might get asked for copies of your 5 or 10 highest bills.

• They might also ask for confirmation of your marital status. Note that common law and married couples, while they do not file jointly in Canada, are required to reflect their martial status and information about their spouses which is then used to calculate certain credits, deductions etc.

• Moving expenses are another area of requests for information. The eligibility and types of moving expenses that can be claimed is very specific so it is important to do this correctly.

• If you have sold a rental property that you own personally (or with your spouse or a partner), CRA will often want to see purchase and sale documents plus any bills for any additions that have been added to the cost.

• It is important to keep these documents organized and on hand for at least seven years to comply with these requests, which can sometimes come several years after the tax return has been filed. Often they will want to see two or three years worth of documents at the same time.

• The information requested can usually be sent in online by submitting documents through CRA my account as long as you have a case number. This can also be done by your accountant through their represent a client portal.

• CRA or RQ might decide that they want to do a full blown audit which means that they will want to examine all your books and records. In this case, it is usually a good idea to have an accountant or someone with experience in these matters on hand to help you deal with this as easily as possible.

• Once you have submitted the information, CRA/RQ will send you a notice of reassessment detailing the results of their findings and potentially disallowing some expenses or sales tax claims. If you do not agree with reassessment you can file a notice of objection.

• As indicated above, both the federal and Quebec revenue agencies require that you maintain tax documentation for 7 years. It is always helpful and less stressful to have well organized, easily accessible documentation

• In some cases interest and penalties are charged for late filing. If the late filing was a result of extenuating circumstances or government error, one can apply for a waiver using forms available at Revenue Canada or Revenue  Quebec.

It is imperative to deal with a request for information or any other letter from CRA and RQ as soon as possible and definitely by the date indicated on the letter as a lack of response will lead to a notice of reassessment that can be costly.. If you are not in a position to respond to it quickly, you should at the very least contact the CRA or RQ and ask for an extension. The government does make mistakes, and often deductions and credits are a matter of interpretation.

Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. She is the author of several books for small businesses and also provides financial consulting services.

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