10-Section Outline: What to Do When You Receive a CRA Notice

1. INTRODUCTION

Receiving a notice from the Canada Revenue Agency (CRA) can be stressful for small business owners and individuals alike. Many people assume that a CRA notice automatically means they are in trouble or facing an audit, but that is not always the case. The CRA sends notices for various reasons, including tax assessments, reminders about outstanding balances, requests for additional information, and general updates.

The key to handling a CRA notice effectively is to remain calm, read the letter carefully, and understand what action, if any, is required. Ignoring a notice can lead to penalties, interest charges, or missed deadlines for disputes, so it is important to address the issue promptly. Some notices may simply confirm tax return adjustments, while others might request supporting documents for tax claims.

By knowing how to respond appropriately, business owners can ensure compliance, minimize financial risks, and prevent unnecessary stress. Seeking help from a tax professional or CPA can also provide clarity and guidance in dealing with CRA communications.

2. TYPES OF CRA NOTICES

The CRA issues different types of notices, each serving a specific purpose. Understanding the type of notice received helps determine the appropriate response. Some of the most common CRA notices include:

Notice of Assessment (NOA)

This confirms that the CRA has processed a tax return and outlines any refunds, tax owed, or adjustments made.

Notice of Reassessment

This occurs when the CRA reviews a tax return and makes changes, often due to missing information or a reassessment of deductions.

Audit Notice

If selected for an audit, the CRA will send a letter requesting financial records and supporting documents.

Payment Reminder

If there is an outstanding tax balance, the CRA may issue a reminder notice with payment instructions and deadlines.

Request for Information

The CRA may request additional documentation to verify tax claims, such as expense receipts or business income records.

For example, a small business that claimed home office expenses might receive a request for supporting documents to verify the claim. Each notice has different requirements and deadlines, making it essential to review the document carefully and take the necessary steps to respond.

3. REVIEWING YOUR NOTICE CAREFULLY

Before taking any action, it is crucial to carefully read and understand the details of the CRA notice. Skimming through a notice and making assumptions can lead to mistakes or missed deadlines. Key details to look for include:

• The date of the notice and any deadlines for response or payment
• The tax year or specific issue the notice refers to
• The amount owed, if applicable, and payment instructions
• Requests for additional documents or corrections to previous filings

It is also important to verify that the notice is legitimate. Fraudulent CRA scams have become more common, with scammers impersonating CRA agents to demand immediate payment. The CRA will never threaten arrest or demand payment via cryptocurrency or gift cards. If a notice seems suspicious, business owners can log in to their CRA My Business Account or call the CRA directly to confirm its authenticity.

For example, if a business receives an email claiming they owe back taxes but the CRA account does not reflect this, it may be a scam. Taking the time to review the notice and confirm its legitimacy prevents unnecessary financial loss or stress.

4. UNDERSTANDING WHY YOU RECEIVED A NOTICE

CRA notices are triggered for various reasons, and understanding why one was issued is essential to resolving the issue quickly. Some common reasons businesses receive CRA notices include:

• The CRA identified a discrepancy in a tax return, such as missing income or overclaimed deductions
• A tax filing deadline was missed, and the CRA is issuing a late-filing penalty or interest charge
• A business was selected for a routine audit or tax review
• The CRA is following up on an outstanding balance that has not yet been paid

For example, if a small business underreported its revenue by mistake, the CRA may reassess the return and send a notice of adjustment, indicating a balance due. Similarly, if a business claimed Input Tax Credits (ITCs) on GST/HST returns but did not provide proper documentation, the CRA might request receipts or invoices to verify the claim.

By understanding the reason behind the notice, businesses can take the appropriate steps to resolve the issue efficiently. If the notice seems unclear, contacting the CRA or working with a CPA can provide further clarification and ensure that the business responds correctly.

5. WHAT TO DO IF YOU AGREE WITH THE NOTICE

If you receive a CRA notice and agree with the information provided, the next step is to take action as soon as possible. Whether the notice indicates an amount owing, a tax adjustment, or a request for additional documentation, handling it promptly can help avoid penalties and interest charges.

For payment-related notices, businesses can make payments through the CRA’s My Business Account, online banking, or at a financial institution. If you cannot pay the full amount right away, the CRA offers payment arrangement options that allow businesses to pay in installments over time. Ignoring the notice can lead to collection actions, such as wage garnishments or bank account freezes.

If the notice is requesting additional documents, gather the required paperwork and submit it before the deadline. For example, if the CRA asks for receipts related to business expenses, providing clear and well-organized documentation can help resolve the issue quickly. Keeping thorough financial records ensures that responding to CRA notices is straightforward and stress-free.

6. WHAT TO DO IF YOU DISAGREE WITH THE NOTICE

If you believe the CRA notice contains errors or incorrect adjustments, you have the right to dispute the decision. The first step is to carefully compare the information in the notice with your own tax records to identify any discrepancies. Sometimes, errors occur due to missing documentation or miscalculations by the CRA.

Business owners can file a formal Notice of Objection through the CRA’s My Business Account or by mail. This must be done within 90 days of the date on the notice. Along with the objection, provide supporting documents, such as receipts, invoices, and financial statements, to justify your claim.

For example, if a business receives a reassessment that disallows a legitimate business deduction, submitting additional proof of the expense, such as invoices and payment receipts, can help reverse the decision. If the CRA denies the objection, businesses may escalate the dispute to the Tax Court of Canada. Consulting a CPA or tax professional can improve the chances of a successful appeal.

7. RESPONDING TO A CRA AUDIT NOTICE

Receiving a CRA audit notice can be intimidating, but understanding the process and preparing thoroughly can help business owners navigate the situation smoothly. An audit does not always mean wrongdoing; sometimes, the CRA simply needs to verify specific financial details.

When a business is selected for an audit, the CRA will outline the scope of the review, including the tax years and areas being examined. Common audit areas include business expenses, GST/HST filings, and payroll records. Business owners should immediately begin gathering relevant documentation, such as invoices, receipts, tax filings, and financial statements.

For example, if the CRA audits a construction company’s travel expenses, providing mileage logs, gas receipts, and business-related travel records can confirm the legitimacy of the claims. Being cooperative, organized, and responsive during the audit process can help resolve the review quickly and minimize further scrutiny. Many business owners choose to work with a CPA to ensure accurate record-keeping and effective communication with CRA auditors.

8. DEALING WITH A TAX REASSESSMENT

A Notice of Reassessment means the CRA has reviewed a previously filed tax return and made adjustments to the reported income, deductions, or tax credits. These reassessments may result in additional taxes owed or refunds issued, depending on the changes made.

If a business agrees with the reassessment, they should review the changes carefully and make any necessary adjustments to their financial records. If there is a balance owing, paying as soon as possible will prevent interest charges from accumulating.

However, if the business disagrees with the reassessment, they can file an objection within 90 days. It is important to provide clear explanations and supporting documents to challenge the reassessment. For instance, if the CRA disallows certain home office expenses, providing lease agreements, utility bills, and business activity records may help validate the claim.

Regularly reviewing past tax filings, ensuring accurate record-keeping, and working with a tax professional can help businesses avoid unexpected reassessments and ensure compliance with CRA regulations.

9. WORKING WITH A CPA OR TAX PROFESSIONAL

Navigating a CRA notice can be overwhelming, especially for small business owners who may not be familiar with tax laws and compliance requirements. Working with a Certified Professional Accountant (CPA) or tax professional can provide clarity and ensure that the issue is handled correctly. A CPA has experience dealing with the CRA and can help interpret the notice, determine the best course of action, and communicate with the CRA on behalf of the business.

A tax professional can assist with:

• • Reviewing the notice to identify potential errors or discrepancies
  • Preparing and submitting supporting documents for audits or reassessments
  • Filing an objection if the business disagrees with the CRA’s findings
  • Negotiating payment plans for outstanding tax balances

For example, if a business owner receives a notice about unreported income, a CPA can review financial records and determine whether the CRA’s calculations are accurate. Having a professional handle the process reduces stress, prevents costly mistakes, and increases the likelihood of a favorable resolution.

10. CONCLUSION

Receiving a CRA notice does not always mean there is a problem, but it is important to address it promptly and correctly. Ignoring a notice can lead to penalties, interest charges, and potential legal action, while responding proactively can help resolve issues quickly and maintain good standing with the CRA.

Key takeaways for handling CRA notices include:

• Carefully reviewing the notice to understand what action is required
• Responding within deadlines to avoid unnecessary penalties
• Gathering and submitting supporting documents if required
• Filing an objection if the notice contains errors or unfair reassessments
• Seeking help from a CPA or tax professional to ensure compliance and accuracy

By staying organized and maintaining clear financial records, small business owners can prevent future tax issues and handle CRA notices with confidence. Taking a proactive approach to tax management helps businesses avoid costly mistakes and ensures long-term financial stability.