.png)
Individual Tax Series: Amending Tax Returns and Handling CRA Reassessments
- Rylan Kaliel
- Oct 7
- 11 min read
Filing your tax return accurately is essential, but mistakes or overlooked information can happen. Fortunately, the Canada Revenue Agency (CRA) allows taxpayers to amend returns and provides a process for reassessments when adjustments are needed. This blog will guide you through how to correct errors, request adjustments, and respond to CRA reassessments effectively.
What is an Amended Tax Return?
Amending your tax return refers to changing the details in your tax return and re-submitting this to the CRA. Amending your tax return can be extremely valuable as it allows you to correct errors, include additional information, or ensure that your tax return is in line with your tax objectives (to a certain degree).
Often times, amendments arise where slips were missed or received late or where certain amounts are unknown at the time of filing and cannot be confirmed until a later date. One example of this might be a shareholder loan, where you owe your corporation an amount of money. After one year of this amount being outstanding, assuming it has not been repaid, it is required to be included into your income in the year in which the loan was taken out. How would we know this will not be repaid and still outstanding in a year? Due to this uncertainty, amendments become a valuable tool to correct a return when there is uncertainty in the future.
When Should You Amend a Tax Return?
There can be several situations where you may need to amend your return, such as if:
You forgot to report income (T4, T5, T3, etc.).
You missed claiming eligible deductions or credits (medical expenses, tuition, RRSP contributions, etc.).
You made a clerical or calculation error.
You received new tax slips after filing your return[RK1] .
To incorporate uncertain items once they have been determined (such as shareholder loans discussed above).
It is important to note that amending your return does not guarantee your changes will be included, it is up to the CRA’s discretion as to whether they accept your amendment. Often times, most amendments will be accepted, but it does depend on the reasonableness of the amendment and a number of other factors. As such, amending a tax return does contain some risks, such as the denial of deductions included on the amendment. Given this, it is extremely important that amendments are used in sparingly and not used as a regular part of filing your tax return.
Where you amend your tax return to increase your income and thus your tax, penalties and interest may apply. These penalties and interest will generally apply from the date that the taxes would have been due, which is generally April 30th following the end of the calendar year. As was discussed in our Tax Filing Basics blog post, there can be severe penalties and interest applied to outstanding balances. If you were subject to a late-filing penalty on your original return, this may also apply on any increase in tax on your amended return along with interest.
Let’s take an example of this. Let’s say you had an outstanding taxes payable of $20,000 when you filed your original return, which was filed May 15th had a 5% penalty applied to this and you are not self-employed. It is now August 3rd and you have filed an amended return to increase your taxes payable to $30,000. Assuming a prescribed interest rate of 7%, let’s calculate your penalty and interest on this increase in taxes payable.
In the above we note that the penalty of 5% applies here to result in a penalty of $500. You may recall from our Tax Filing Basics blog post that the 5% penalty is on any balance outstanding, but there is also a 1% increase for each month for up to 12 months that the tax return is not filed. As the return has been filed, this 1% would not apply.
Once we calculate the total outstanding balance at April 30th, we take this amount and apply our prescribed interest rate to this amount. This interest is compounded daily, which was covered in detail in our Tax Instalments blog post. This results in $193.04 of interest accrued to August 3rd, the date of filing.
To summarize, instead of just owing the $10,000 increase in taxes payable, we now owe the following amount:
As we can see, we now owe much more than just the $10,000, in fact we increased how much we owe by about 6.93% as a result of the penalty and interest. Given this, it is extremely important to understand that interest and penalties can apply and determine how much you actually have to pay. If the interest and penalty were missed, there would continue to be an outstanding balance which would further accrue interest.
Please note, amending a tax return cannot be used to perform retroactive tax planning, that is realizing later that a certain tax approach would be better and amending previous returns to match this approach. Retroactive tax planning is very rarely accepted by the CRA and the amendment of returns to achieve this can result in negative results. Given this, it is extremely important that you understand the approach you’d like to take ahead of filing the tax return, or even as part of the calendar year you will file for, documenting this, and applying it to your tax return at the time of filing.
Please note, the CRA does not allow changes for certain items, such as:
Applying for benefits or credits
Making or modifying elections made on the original return
Allocating a refund to other CRA accounts
Updating personal information
Given this, it is very important that these be correctly included on your tax return. Please note, some elections may be eligible for late-filing, separately from your tax return, and an amendment may be accepted if it is to correct a late-filed and accepted election. This will vary from election to election and can carry some interest and penalties of their own. It is advised that you discuss late-filing any elections with a tax professional to understand the process and application of any interest and penalties.
How to Amend a Tax Return
There are four main ways to request an adjustment to your return:
Online Through CRA My Account
Log in to CRA My Account.
Select "Change my return" and update relevant tax years.
Submit and track the status of your request online.
Using Tax Software
In your tax software look for the option to change your return using “ReFILE”.
Adjust the tax return for your required changes.
File the amended return electronically or print the return and mail this.
This option may require additional support, including form T1-ADJ (discussed below).
Using Form T1-ADJ (T1 Adjustment Request)
Complete and mail Form T1-ADJ to the CRA.
Attach supporting documents, such as receipts or corrected tax slips.
Submitting a Written Request
Write a letter to the CRA explaining the necessary changes.
Include your SIN, tax year affected, and supporting documents.
Please note, this process has historically been offered but may be subject to the CRA’s discretion and as such may not be as reliable as the other three options.
Processing times for adjustments vary but typically take two to four weeks for electronically filed returns and thirty to forty weeks for mailed returns. Where your amended return is accepted the CRA will issue a new Notice of Assessment or Notice of Reassessment based on the amended return, see What are Notice of Assessments and Notice of Reassessments? below for more details on these.
What is the Voluntary Disclosure Program?
There can be times where amendments may result in significant interest and penalties which have not yet arisen unless they file these amended returns or meet certain tax obligations. Given this, the CRA offers the voluntary disclosure program (VDP) which allows persons to file these returns or meet these obligations with the potential to have the interest and penalties waived. The intention of the VDP is to provide relief on a case-by-case basis to come forward to fix errors or omissions in their tax filings.
In order for you to apply for the VDP, the following must be met:
You must submit your application before an audit or investigation has been initiated against you or a related taxpayer about the information being provided.
You must include all relevant information and documentation for the required tax years or reporting periods.
Your information includes an error or omission with applicable interest and/or penalties.
Your information is at least one year or one reporting period past the filing due date.
You must include payment of the estimated tax owing or request a payment arrangement (subject to CRA approval).
It is important to bring special attention to the first point, this must be applied for before an audit or investigation has been initiated, which means that if you are aware of any actions by the CRA to audit or review the amounts you want to apply for you will not be eligible for the VDP. The point of the VDP is effectively to self-report to the CRA and make them aware of the error or omission, not to try and get ahead of interest and/or penalties.
Further, the second point should be noted, your package must be complete. This means that you must be extremely thorough in your application, ensuring that all information is provided to the CRA. Absent this, there is a possibility that your application will be denied and the CRA will now be aware of the situation.
The VDP can be extremely valuable to correct situations and avoid the negative effects of interest and/or penalties. For example, one situation we have dealt with is where a person was not aware that foreign income had to be reported, along with form T1135 Foreign Income Verification Statement, which the income would carry an increase to tax and thus interest and potential taxes payable along with the form which carried hefty late-filing penalties. This ran for more than 10 years, resulting in significant tax, interest, and penalties. In this case, the CRA was not aware of this situation and a VDP was the perfect tool to get the person back in compliance with the CRA and reduce the amount they were required to pay.
Please note, the VDP can be a complicated process and as such is out of the scope of this blog. If you’re interested in learning more, please view the CRA’s website on this program. Additionally, it is highly recommended that you discuss applying under the VDP with a tax professional and work with them to complete your application. Given its complexity and the concerns with not fully meeting the requirements under the VDP, there is significant risk with not filing your application correctly and thus having a tax professional assist is highly recommended.
What are Notice of Assessments and Notice of Reassessments?
These were discussed briefly in our Tax Filing Basics blog post, but to recap, these can be defined as follows:
Notice of Assessment (NOA): A notice sent from the CRA to you that confirms that the CRA agrees with the information in your return and have accepted the return as you filed it.
Notice of Reassessment (NORA): A notice sent from the CRA that notes they disagree with the filed return and explains the changes the CRA made to the return. Often the Notice of Reassessment will result in an increase in taxes payable that you are required to pay.
These are often received once you file a return. Most people will receive a NOA, provided the CRA agrees with how they filed the return. In fact, even if the return was filed incorrectly, if it is not notice by the CRA at the time of their first review they may still receive a NOA.
Where we see a NORA come up is typically a year or more down the road when the CRA performs a more thorough review of the tax return. The issue with this is that a NORA will often result in an increase in taxes payable, to which interest and penalties could apply. Given the timing of the NORA, the period in which interest and penalties are applicable could be extended significantly, resulting in more interest and potentially penalties arising.
Most tax returns are statute-barred, or no longer able to be adjusted by the CRA, three years after the date of the NOA, unless misrepresentation or gross negligence is involved. This doesn’t mean the three years after the end of that year, nor does it mean three afters that date on which the tax return was filed, but three years after the date on which the tax return was assessed. This means that the CRA has effectively three years after they assess the return and issue the NOA to review and re-assess the return, after which the return can no longer be re-assessed. The only exception to this can be where a waiver is signed by the person of the three-year limit or if the CRA can prove misrepresentation or gross negligence was involved.
Please note, misrepresentation or gross negligence can be a tricky term to determine but will generally include situations where inaccurate information was knowingly included on the return or where the preparer of the return ought to have known that something should be included or not included but failed in their ability to include or not include the amounts, due to significant error. In these cases, the tax return for that year could be left open to reassessment indefinitely.
There can be extensions to this statute barred period, however, given their significant complexities it is out of the scope of this blog. It is advised that if you are concerned about your statute barred date you discuss this with a tax professional.
What are the Implications of a Notice of Reassessment and What are Your Options?
Receiving a NORA typically means that the CRA has reviewed your return and decided that certain amounts on the return are incorrect or require adjustment. This could be for simple situations, such as a tax slip was not included, or could be more complex, such as disagreeing with the calculation of a capital gain or loss on the sale of an asset.
The CRA may reassess your tax return for a variety of reasons, including:
Random review of your tax return.
Discrepancies between your reported income and tax slips received by the CRA.
Verification of deductions or credits claimed.
Review of high-risk areas, such as self-employment expenses or rental income.
Typically, NORAs will result in an increase to taxes payable, which the CRA will outline in the NORA. They will often also include an accrual of interest and potential penalties up to the date of listed on the NORA. They will then provide an explanation of their rationalization for the changes.
Occasionally, the CRA may be issuing the NORA as a result of the CRA’s review or audit. This may involve the CRA asking questions of you, often delivered from a letter mailed or included in your CRA My Account. The CRA review and audit process will be discussed in a later blog, but it is important to note this may be where NORAs arise.
It is important that when you receive a NORA you review the letter in its entirety to understand that changes that are being made. If you agree with the changes, make arrangements to have the taxes and potential interest and penalties and settle the amounts. Where you disagree, it is recommended that you:
Contact the CRA for clarification.
Gather supporting documents (e.g., tax slips, receipts) to verify your claim.
File a formal objection using Form T400A Notice of Objection within 90 days of receiving the reassessment.
The process of filing Form T400A can be extremely complex, time consuming, and in some cases expensive. It will require that the CRA re-review the NORA and re-determine if they agree with their own NORA or your objection, in full or in part. Ultimately, if the CRA disagrees with your objection the situation can be taken to court to be resolved by a judge.
As noted above, this process can be extremely complex, time consuming, and in some cases expensive. Given this, it is highly recommended that a tax professional, specifically a tax lawyer, be involved in the process.
Common Mistakes and How to Avoid Them
To reduce the risk of needing amendments or reassessments:
Double-check tax slips before filing.
Use CRA My Account to confirm all tax slips have been issued.
Ensure deductions and credits claimed are supported by receipts.
File early to allow time to fix mistakes before deadlines.
Complying with CRA reviews and audits requests on a timely basis with complete information.
Summary
Amending tax returns and handling CRA reassessments is a normal part of tax filing. Whether correcting errors or disputing a reassessment, understanding the process and maintaining accurate documentation will help ensure a smooth resolution.
Stay tuned for our next blog, where we’ll explore the CRA My Account portal and how it simplifies tax management for Canadians.
KLV Accounting, a Calgary-based accounting firm, is here to help. Contact us today to enhance your financial strategy, minimize your taxes, and drive business success! For a free consultation, call us at 403-679-3772 or email us at info@klvaccounting.ca.
Next blog - Upcoming! |
Great article — very informative! I appreciate how clearly it explains the process of amending tax returns and dealing with CRA’s reassessments. It’s a good reminder that staying proactive matters. If you’re unsure of your rights or the best way to respond, consider seeking help with internal audit services — they can uncover discrepancies early and ensure your filings are solid before things escalate.