The Arbitrary Nature of CRA Tax Re-assessments :CRA SOTW
Alan Baggett
Taking on the CRA
Andy Wong
Guest columnist
Monday, December 22, 2008
I received many enquiries from Northerners who were hit with
unexpected tax bills from the Canada Revenue Agency (CRA) this past
month. Apparently, the CRA have been working earnestly to reduce the
2007 travel deductions claimed by Northerners.
Here's the gist of the enquiries: Why is the CRA reducing my travel
claim and what can I do about it? Here's the why and what. But first,
here's some perspective on this complicated travel deduction.
Northerners who have lived in the NWT and Nunavut for at least six
months qualify for a travel deduction if they receive a Box 32 travel
benefit from their employer reported on their T4 slip.
For this deduction, you claim the lower of three amounts: the Box 32
benefit, trip expenses and a controversial amount described in the
Income Tax Act as the "lowest return airfare ordinarily available, at
the time the trip was made." If your travel benefit was $1,500 and you
spent $1,800 on a trip, you want to know what that "lowest return
airfare" is, wouldn't you?
The CRA states the "lowest return airfare" is the lowest regular fare
available on the day of your trip to the nearest city, i.e., Edmonton,
Winnipeg, Montreal or Ottawa, depending on where you live.
What the CRA is saying, which agrees with what the tax rules say, is
the ceiling amount is the last-minute fare you would have paid at the
counter at the time or day of your trip.
Here's where this issue goes from incomprehensible to impossible. No
one can possibly know the lowest regular last-minute counter fare on
all flights out of, say, Yellowknife-Edmonton for the 365 days in
2007. It is infeasible to do the legwork - asking for the daily last-
minute counter fare on every flight, from every Northern community in
Canada - to compile this information for CRA's assessment purposes.
To their credit, the CRA has their version of the answer. It is $756
(Yellowknife-Edmonton); $1,142 (Norman Wells - Edmonton) and $1,265
(Inuvik - Edmonton) for 2007. Only, there is a huge problem. The CRA
won't say how they arrive at these amounts.
Lack of transparency isn't the organization's only shortcoming. For
2006, its version of the "lowest return airfare" was $1,209 (Yk-
Edmonton) and - surprise - $1,150 (Inuvik to Edmonton). Does the word
"haphazard" come to mind?
Here's more for the comic book. In its reassessing zeal, the CRA
reduced a two-traveller trip to $756; instead of $1,512 ($756 x 2) by
disregarding the fact $756 was their imposed per-person amount for
trips from Yellowknife.
In another botched reassessment, the CRA reduced a travel claim to
$756, when the trip had originated from Iqaluit where the taxpayer
resided at the time of the trip. Subsequent to the trip, in the latter
part of 2007, the taxpayer did relocate to Yellowknife but that's no
justification for rewriting this particular trip itinerary.
If your 2007 travel deduction was reassessed, you should object using
Form T400A. Google "CRA" and search for document P148 for more
information. You have until April 30, 2009 to file your 2007
objection.
When you object, simply state "I object to the $756 (or the amount for
your community) used by the CRA as the lowest return airfare. Please
supply me with proof that $756 was the last-minute regular airfare on
the date(s) my trip(s) began."
Your objection redirects the spotlight squarely at the CRA and compels
the agency to justify your reassessment.
Andy Wong, CGA, CFP, is a tax consultant at MacKay LLP, Chartered
Accountants, in Yellowknife. He can be reached at:
andre...@yel.mackayllp.ca.
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Alan Baggett – Tax Collector’s Bible