Tricks and Traps in T1 Adjustment Requests
Requesting a T1 adjustment (a change in a filing position taken by an individual on a previous T1 return) is not always as simple as filling out CRA form T1-ADJ (“T1 Adjustment Request”) and sending it in. The possibility of the CRA’s rejection of the request, and the impact of the request on additional adjustments, suggests that the taxpayer should consider precautionary strategies.
The date on which the taxpayer receives a notice of assessment in respect of a tax return determines two important dates: (1) date A, the last day for filing a notice of objection (including the legislated period for which an extension of time to object is available), and (2) date B, the last day of the normal reassessment period (defined in subsection 152(3.1)).
On or before date A, a taxpayer who wants to make an adjustment to his or her return has a choice between simply filing form T1-ADJ and filing a notice of objection. (After date A, form T1-ADJ is the only choice.) Filing form T1-ADJ saves the taxpayer time, and is therefore a good choice for a straightforward adjustment that the CRA is certain to accept (for example, claiming an additional charitable receipt). No reasons need be given to the CRA to support such a filing. However, the filing of a notice of objection better preserves a taxpayer’s appeal rights: the CRA’s response can be challenged on the basis of correctness rather than just on the narrower ground of whether the CRA has acted unreasonably (pursuant to judicial review in the FC).
When a taxpayer files form T1-ADJ, it is prudent to indicate on the form that the submission should not be interpreted as a waiver of (that is, permission for the CRA to extend) the normal reassessment period. This precaution is suggested by the result in Remtilla v. The Queen (2015 TCC 200), in which the court decided that a form that included all the elements of a waiver should be interpreted as such. If this indication is not given on the form and the CRA attempts to apply the Remtilla principle, the taxpayer can point to DouangChanh v. The Queen (2013 TCC 320), in which the court decided that a request made within the normal reassessment period should be treated as a request only to reassess within that period, even if there is a long CRA delay in processing the request.
After date B, the CRA considers adjustment requests to be requests for taxpayer relief pursuant to subsection 152(4.2). Thus, the adjustment request should include any factors that would generally be used to support a taxpayer relief request, such as extraordinary circumstances, actions of the CRA, or financial hardship (see Information Circular IC07-1, “Taxpayer Relief Provisions”). It is easy to omit this information, since the form instructions do not mention the difference between filing within—versus filing beyond—the normal reassessment period. If the request is denied on that basis, the taxpayer’s best alternative might be to apply to have a second review of the request completed by another CRA officer; the additional information can be included in the second review request.
T1 adjustment requests made after date B should be submitted only after the return is scrutinized to ensure that all possible issues have been considered—not just the one that initially caused the taxpayer to consider an adjustment request. An assessment issued under subsection 152(4.2) is final and cannot be the subject of a notice of objection, so an incomplete request can harm the taxpayer.
Paragraph 87 of IC07-1 states that the CRA will not reassess under subsection 152(4.2) to effect a change in the law due to a court decision. However, there may be a way to reframe the situation to avoid the application of this rule. Suppose that, on the basis of this rule, the CRA denies an adjustment request for an additional deduction that a court had provided in the “Jones” decision. Suppose further that the taxpayer was told by the CRA prior to the release of “Jones” that the amount was not deductible. If it is possible to find a “Smith” decision that says the same thing and was decided prior to the CRA’s advice, the taxpayer could apply for relief on the basis of bad CRA advice.
Requesting a T1 adjustment (a change in a filing position taken by an individual on a previous T1 return) is not always as simple as filling out CRA form T1-ADJ (“T1 Adjustment Request”) and sending it in. The possibility of the CRA’s rejection of the request, and the impact of the request on additional adjustments, suggests that the taxpayer should consider precautionary strategies.
The date on which the taxpayer receives a notice of assessment in respect of a tax return determines two important dates: (1) date A, the last day for filing a notice of objection (including the legislated period for which an extension of time to object is available), and (2) date B, the last day of the normal reassessment period (defined in subsection 152(3.1)).
On or before date A, a taxpayer who wants to make an adjustment to his or her return has a choice between simply filing form T1-ADJ and filing a notice of objection. (After date A, form T1-ADJ is the only choice.) Filing form T1-ADJ saves the taxpayer time, and is therefore a good choice for a straightforward adjustment that the CRA is certain to accept (for example, claiming an additional charitable receipt). No reasons need be given to the CRA to support such a filing. However, the filing of a notice of objection better preserves a taxpayer’s appeal rights: the CRA’s response can be challenged on the basis of correctness rather than just on the narrower ground of whether the CRA has acted unreasonably (pursuant to judicial review in the FC).
When a taxpayer files form T1-ADJ, it is prudent to indicate on the form that the submission should not be interpreted as a waiver of (that is, permission for the CRA to extend) the normal reassessment period. This precaution is suggested by the result in Remtilla v. The Queen (2015 TCC 200), in which the court decided that a form that included all the elements of a waiver should be interpreted as such. If this indication is not given on the form and the CRA attempts to apply the Remtilla principle, the taxpayer can point to DouangChanh v. The Queen (2013 TCC 320), in which the court decided that a request made within the normal reassessment period should be treated as a request only to reassess within that period, even if there is a long CRA delay in processing the request.
After date B, the CRA considers adjustment requests to be requests for taxpayer relief pursuant to subsection 152(4.2). Thus, the adjustment request should include any factors that would generally be used to support a taxpayer relief request, such as extraordinary circumstances, actions of the CRA, or financial hardship (see Information Circular IC07-1, “Taxpayer Relief Provisions”). It is easy to omit this information, since the form instructions do not mention the difference between filing within—versus filing beyond—the normal reassessment period. If the request is denied on that basis, the taxpayer’s best alternative might be to apply to have a second review of the request completed by another CRA officer; the additional information can be included in the second review request.
T1 adjustment requests made after date B should be submitted only after the return is scrutinized to ensure that all possible issues have been considered—not just the one that initially caused the taxpayer to consider an adjustment request. An assessment issued under subsection 152(4.2) is final and cannot be the subject of a notice of objection, so an incomplete request can harm the taxpayer.
Paragraph 87 of IC07-1 states that the CRA will not reassess under subsection 152(4.2) to effect a change in the law due to a court decision. However, there may be a way to reframe the situation to avoid the application of this rule. Suppose that, on the basis of this rule, the CRA denies an adjustment request for an additional deduction that a court had provided in the “Jones” decision. Suppose further that the taxpayer was told by the CRA prior to the release of “Jones” that the amount was not deductible. If it is possible to find a “Smith” decision that says the same thing and was decided prior to the CRA’s advice, the taxpayer could apply for relief on the basis of bad CRA advice.
