Received a CRA Letter? Here’s What to Do Next : MONTREAL CPA FIRM NEAR YOU

Receiving a letter from the Canada Revenue Agency (CRA) can be unsettling, but it doesn’t always mean you’re being audited. CRA sends out various types of letters for different reasons, some simply to verify information on your tax return rather than to launch a full audit. The key is to stay calm, read the letter carefully, and understand what kind of inquiry it is. Misinterpreting the letter can lead to unnecessary stress or poor responses that might trigger further examination. This overview explains the common CRA letters and how to handle each appropriately.

Types of CRA Letters

CRA correspondence generally falls into a few categories. Identifying the type of letter you’ve received is crucial for knowing how to respond:

• Routine Review Letters (Information Requests): These are often requests for receipts or documentation to support specific items on your return. Examples include pre-assessment reviews (before your return is fully processed), post-assessment (processing) reviews (after you receive your Notice of Assessment), matching program reviews (e.g. verifying T-slip amounts), or benefit validation letters (confirming eligibility for credits like GST/HST, Child Benefit, tuition, etc.). Such letters are automated or semi-automated checks focusing on particular deductions or credits. They have a narrow scope and usually give you about 30 days to respond. These are essentially the CRA asking “show us proof of X,” and are not full audits. If handled properly, they tend to wrap up quickly.

• CRA Audit Letters/Notices: An audit notice means CRA is conducting a deeper examination of your tax affairs. Audits are manual, detailed investigations that can cover multiple items or years. An audit letter will typically specify the tax years under review and request extensive records. Audits can involve on-site visits, reviews of entire financial records, and even multi-year scope if issues are found. The stakes are higher: audits can result in reassessments with additional tax owing, interest, or penalties if discrepancies are found. In short, a full audit is more comprehensive and serious than a routine review.

Understanding whether your letter is a targeted information request (review) or a formal audit notice will guide your next steps. A review letter might say something like “please provide receipts for your $X of medical expenses,” whereas an audit letter might state that an auditor has been assigned to examine your overall return for a given year.

Recommended Steps After Receiving a CRA Letter

No matter the type of CRA letter, there are key actions you should take to address it properly. Below are steps to follow when you receive a CRA letter:

1. Read the Letter Carefully and Note the Deadline: Open the correspondence right away and review it line by line. Identify exactly what the CRA is asking for and by when. The letter will usually state the purpose (e.g. verification of specific info or notice of audit), the tax year in question, and a response deadline. Make a note of any due dates – CRA typically gives 15–30 days to respond for most review requests. Missing the deadline can lead to denied claims or CRA taking further action, so this first step is crucial.

2. Determine the Letter Type and Scope: Figure out whether you’re dealing with a routine review vs. a full audit. A review letter will focus on specific line items or credits (for example, asking for receipts for childcare, medical, or moving expenses), whereas an audit notice will indicate a broader examination of your return or business records. Understanding the scope helps you tailor your response – you don’t want to over-share for a simple review, but you also need to be very thorough if it’s an audit. If it’s unclear, look for clues: terms like “pre-assessment review” or “request for information” signal a limited review, while mention of an auditor’s name or an audit team suggests a full audit.

3. Gather and Organize the Required Documents: Collect the documentation specifically requested by the CRA.

   • For a review letter (information request), gather only the supporting documents relevant to the items in question. For example, if they’re reviewing your medical expenses, pull together your medical receipts, pharmacy printouts, or insurance statements for those expenses. Ensure each document is legible, organized, and matches the amounts claimed. It helps to group documents by category and label them so the reviewer can easily see what they are.

   • For an audit, you’ll need a more comprehensive set of records. This may include financial statements, ledgers, invoices, bank statements, contracts, payroll records, etc., depending on what the audit letter outlines. Auditors can ask for a broad range of information, so it’s wise to prepare complete and accurate records covering the period in question. In either case, stay factual and stick to what’s asked – avoid sending extra documents not requested, as it could raise new questions.

4. Respond Promptly and in the Required Manner: Prepare your response and submit it by the deadline given in the letter. CRA letters often provide instructions for how to respond (by mail, through your CRA online account upload, etc.). Key points when responding:

   • Include all documentation that was requested, but do not include unrelated info. For example, if they asked for tuition receipts, send the official tuition tax forms or receipts – don’t also send your entire tax return or bank statements unless those were specifically requested.

   • Write a brief cover letter or note if necessary, referencing the CRA’s letter and listing the documents you’ve enclosed. Keep any explanation concise and factual. There’s no need for a long narrative – just clarify what each attached document is, if it isn’t obvious.

   • Ensure the CRA receives your response by the due date. If mailing, send it early or via registered mail/courier to have proof of delivery. If uploading online, double-check that the files uploaded properly. Timely response is critical; late replies can lead the CRA to proceed without your information, which might mean denied credits or an arbitrary reassessment.

5. Seek Professional Help if Needed: If the situation is complex or you’re unsure how to respond, consider reaching out to a CPA or tax professional – especially for audit letters. A qualified accountant or tax advisor can communicate with the CRA on your behalf, ensure you don’t accidentally provide misleading information, and help present your documents in the best light. In fact, for a serious audit, it’s often recommended to have a CPA handle the correspondence and negotiations: they know what the CRA is looking for and can prevent common mistakes (like inconsistencies or over-sharing) that taxpayers might make. Don’t hesitate to get expert advice if you feel out of depth; it can make the difference in keeping a review from escalating or an audit from ballooning further.

Following these steps will put you in a strong position to address most CRA letters. The goal is to demonstrate cooperation and provide the needed info without delay, which will satisfy the CRA’s request in the majority of cases.

Tips and Warnings

When dealing with CRA letters, keep in mind these additional tips and cautions:

• Never Ignore a CRA Letter: Don’t shove it in a drawer! Ignoring the letter will not make it go away – in fact, it makes things worse. If you ignore a review request, the CRA will simply deny the credits or deductions under review (for example, disallow your medical or childcare claims). If you ignore an audit notice, the auditor can proceed to reassess your taxes based on assumptions, potentially adding income or denying expenses without your input, and then impose penalties and interest on top. In short, failing to respond virtually guarantees an unfavorable outcome, so always address CRA correspondence promptly.

• Stick to What’s Requested: Provide only the information and documents asked for, nothing more. Volunteering additional, unrequested documents or long-winded explanations can complicate your case. The CRA officer is looking for specific proofs; giving them extraneous paperwork might raise new questions or widen the review unnecessarily. Keep your response focused and organized – for each item they inquire about, supply the supporting document (receipt, slip, statement, etc.) that proves it. If you’re unsure about including something, err on the side of simplicity or consult a professional.

• Be Organized and Factual: When you assemble your reply, make it easy for the CRA to follow. Legible copies, clear labeling, and a brief cover note (if needed) will help. Avoid emotional language or personal pleas; stick to the facts. For example, if explaining a discrepancy, provide a short factual explanation with backup evidence rather than a lengthy story. A neutral, professional tone helps your case. Remember, the CRA cares about documentation over explanations – “show, don’t tell” whenever possible.

• Keep Copies of Everything: Make a copy (physical or digital) of the letter you received and all documents you send to the CRA. This record is important. It ensures you know exactly what was provided in case there are follow-up questions or if anything gets lost. Also keep notes of any phone conversations with the CRA, including dates and the names of agents. Having a paper trail will be invaluable if you need to discuss the matter later or if a different CRA department contacts you about the same issue.

• Meet Deadlines or Ask for Extensions: As noted, always aim to respond by the given deadline. If you truly can’t get the documents in time (e.g., waiting on a form from a third party), call the CRA contact number in the letter and request an extension. They will often grant additional time if you have a valid reason, but you must ask before the deadline passes. Document any extension granted (note the date and agent’s name). Never simply let a deadline lapse without action.

• Future Precautions: One indirect “tip” is to keep your tax affairs in good order to avoid or ease future CRA reviews. The article notes that clean, accurate tax filing and proper record-keeping are the best prevention against intensive audits. While this doesn’t help with a letter you’ve already received, it’s good advice going forward: maintain receipts and documentation for all claims, report all income, and follow tax rules. If you consistently do this, any future CRA letters are more likely to be resolved in your favor quickly because you’ll have the proof on hand.

Conclusion and Next Steps

In summary, a CRA letter is a call to action, not a cause for panic. By understanding the type of letter (review vs. audit) and responding promptly with the required information, you greatly increase your chances of a quick resolution. Many routine reviews conclude with no change to your tax return once you send in the proper documents. And even in the case of an audit, a well-prepared and cooperative response – often with professional guidance – can limit the scope and outcome of the audit.

After you submit your response, the CRA will review the information and then inform you of the result. If you’ve provided everything to their satisfaction, you may simply receive a letter or a Notice of Assessment indicating that no changes (or only minor adjustments) were made. Most reviews close without further incident when handled properly. If the CRA does propose changes (for example, disallowing a deduction), they will send you a reassessment or proposal. You are not without recourse at that point. Should you disagree with the CRA’s decision after responding, you have the right to challenge or clarify it. You can send additional information or clarification to the auditor/reviewer if you think it will help. Moreover, for a formal reassessment, you can file a Notice of Objection within 90 days of the reassessment notice to appeal the decision. This escalates the matter to the CRA’s Appeals division for an independent review. In complex disputes, seeking a tax professional or legal advisor for the objection process is advisable.