Post Assessment Scrutiny of Rent, Tuition and Education Amount

Canada Revenue Agency (CRA) as indicated in my earlier blog carries out Post Assessment Scrutiny in Spring-Summer after most of the tax returns have been filed with them.

CRA carries out post assessment scrutiny for many items of income, credits and deductions claimed on the taxpayer’s return of income. Rent paid in Ontario and Tuition and education amount is very common and therefore discussed below:

Rent Paid in Ontario:

If you lived in Ontario during and at the end of the year 2015, you can claim rent payments made during 2015 on your tax return for Ontario Trillium Benefit payments. Ontario Trillium Benefit payments are made by the Ontario Government by way of Direct Deposit payments from July to June each year. If the total benefit amount is below $300, Ontario Government usually pays it in one shot.

Rent payment is one of the parameters for deciding the amount of Ontario Trillium Benefits and when audited by CRA, it looks for verification of the following aspects:

1)      The Rent payment should be confirmed by the landlord who received the rent during 2015 either by way of a letter or monthly receipts issued by the landlord. In the absence of both, copies of cancelled cheques or bank drafts are acceptable as evidence.

2)      Monthly receipts should show the relevant details such as the name of the taxpayer who paid the rent, amount of rent paid, month for which the rent was paid, address for which the rent was paid.

3)      The rent payment should be for a principal residence which means that you should be living in the place for which the rent is claimed.

4)      If the you changed your residence during the year, separate receipts/letter should be provided for each residence.

5)      Lease agreements cannot be provided in the place of rent receipts since CRA looks for proof of payment and legality of tenancy.

Tuition and Education Credit Claimed:  

CRA Looks for following details when the Tuition and Education Amount is claimed on the Tax Return:

1)      The amount of Tuition fees paid.

2)      The education months for which tuition fee paid.

3)      The name of the course/program for which it is claimed.

4)      The name of the Institution who issued the receipt.

5)      The name of the taxpayer who claimed it.

6)      The tuition fees receipt should be printed and not handwritten.

If the above proofs are not submitted within a period of 30 days normally, CRA will disallow the same and can allow the claim when the proof is submitted after 30 days.

What is Post Assessment Scrutiny of CRA?

What is the Process?

After you file your Income Tax and Benefit Return for the year 2015, the Canada Revenue Agency would assess your Income Tax Return within its specified time limit and release an Income tax refund, if any.

Why Post Assessment?

After issuing Notice of Assessments to tax payers, Canada Revenue Agency (CRA) undertakes the program of conducting Post Assessment scrutiny of the tax returns filed by the tax payers. This is done in order to have faith in the self- assessment system of filing tax returns. A self-assessment tax system means you assess your own tax owing or tax refund.

Time Period Allowed:

As a part of conducting this program, CRA requests various tax documents and tax slips, in support of the tax payer’s claim on his income tax return already filed. CRA normally provides 30 days’ time period to taxpayers to submit the documents to them. In case if the tax return is e-filed, they may ask e-filers to submit the tax documents in addition to asking the tax payer for the same.

In case if no response is received either from the e-filer or the tax payer, CRA will disallow the claim made on the income tax return and ask for the tax owing. E-filers are registered with CRA and therefore CRA is able to track them and communicate with them.

Not all the returns are selected for the post assessment scrutiny but only a small percentage of the tax returns are selected for it.

Selection Criteria:

The selection for the post assessment scrutiny is very objective and not subjective. CRA selects income tax returns based on objective criteria determined each year (e.g. a claim made on the particular line of the income tax return, unusually large amounts of claim made or apparent mistake claims).

Tax Documents submitted after the Time Limit:

If the documents asked by CRA are not submitted within the specified time limit, they may be admitted by CRA later on when the documents are submitted after the time limit as well. However, in the meantime CRA will ask for the tax owing due to the disallowance of the claim.

Therefore, it is extremely important to make the claim on your income tax return when you have the adequate documents in support of your claim (e.g. rent claim made in Ontario for claiming Ontario Trillium Benefit). The taxpayer must ensure that he has a rent receipt before such claim is made on his income tax return.

 What happens If you disagree with the reassessment of CRA?  

 In case if you disagree with the reassessment of CRA, you can formally object to their reassessment within 90 days from the date of reassessment.