The Arbitrary Nature of CRA Tax Re-assessments :CRA SOTW

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: andrewwong@yel.mackayllp.ca.

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