T1 Processing Review
Every year, the Canadian Revenue Agency (CRA) issues notices to selected taxpayers requesting documentation to support the deductions included on the individual’s personal tax return. Receiving the ‘T1 Processing Review’ notice may make you feel like you are being audited but in reality, this is a common practice.
Canada’s tax system is based on self-assessment. This means that individuals voluntarily complete an income tax return to report their annual income and claim all deductions or credits that apply to their situation. Each year, the CRA conducts many review activities to promote awareness and compliance with the laws it administers. These reviews are an important part of the activities undertaken to maintain the integrity of the Canadian tax system and the public’s confidence in it.
The CRA typically conducts these processing reviews during the latter half of the year, after the taxpayer has received their Notice of Assessment. Frequent inquiries are related to claims for charitable donations, medical expenses, tuition fees and foreign tax credits.
There are several reasons why an income tax return may be selected for review including:
- Random selection;
- Information on the return does not agree with information received from third-party sources, such as T4 information slips;
- The types of deductions or credits claimed and an individual’s review history e.g. where CRA had adjusted a previous return;
- Large variances when compared to the previous years return e.g. significant medical expenses or child care costs.
If you are selected for a review, send your response within the specified timeframe, usually 30 days from the date of the letter. If the CRA does not receive a response within that time, it will adjust your claim based on the information it has. This generally implies disallowing certain deductions on the tax return resulting in an unfavourable tax position to you.