Canadians - Tax Admin Question

[Uccmal]

Only for Canadians please:

 

I have a situation where I believe the CRA badly miscalculated my 2011 tax return. 

 

Has anyone been through the process of appealing a decision?

 

I have looked at the CRa site.  I would just like to hear from anyone who has personal experience with the process.

 

I had significant realized losses for 2011.  I booked them against prior gains.  My software adjusted them for the 50% rate and the CRa subsequently reduced it a further 50%. 

[roundball100]

Al - this is a question which should be decidable entirely based on facts (i.e., a simple phone call to CRA, or 3 minute discussion with a tax accountant, should clarify the rules, and in such cases the outcome should be 100% predictable). Give them a call - in my experience, real people answer the phone, and do their best to help you.  From memory: you can claim back losses against capital gains from the immediately preceding 3 years (only).  I don't think the "inclusion" rates changed in the past 3-4 years. I seem to recall that for such a claim-back you need to file some extra form.  On the other hand: capital losses can be carried forward indefinitely, e.g., if you had a tax year 2011 net capital loss, when you file your tax year 2012 return, you can claim against that loss on the 2012 return directly, and you don't have to worry about that loss have only a 3-year claimback lifetime.    Disclaimer: this is all from memory, but your tax guy will know the rules.

[drewdalton]

Uccmal,

 

As Roundball stated you should consider discussing these issues with your tax accountant. 

 

In Canada, capital gains currently are taxed at an inclusion rate of 50%.  In 2000 the inclusion rate was 75%.  Since 2001 the inclusion rate has remained at 50% (ie- a $1,000 capital gain is reported as a taxable capital gain of $500).

 

Capital losses have the same inclusion rate of 50%.  A net capital loss only can be deducted against a taxable capital gain.  A net capital loss, for 2011, can be carried back three years to 2010, 2009, and 2008.  Also, a net capital loss can be carried forward indefinitely. 

 

Here is CRA's Guide- T4037- Capital Gain 2011.  I would take a look at Chapter 5 (pg 30)- Capital Losses 

 

http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-11e.pdf

 

In your case it sounds like CRA may have made an error in calculating your 2011 net capital losses (ie- instead of allowing you 50% of your net capital loss, CRA only allowed 25%).  If this is the case, then you or your tax accountant, should write a letter to CRA and lay out the correct gains and losses by year.  In addition to the letter you would file a "T1 Adjustment Request" with CRA.

 

http://www.cra-arc.gc.ca/E/pbg/tf/t1-adj/t1-adj-fill-12e.pdf

 

Also, you would complete a "T1A- Request for Loss Carryback", which simply requests the net capital losses from 2011 be carried back to 2010, 2009 & 2008.

 

http://www.cra-arc.gc.ca/E/pbg/tf/t1a/t1a-11e.pdf

 

You may wish to request that CRA provide you with a list of your past capital gains and losses so that both you and CRA are working with the same numbers.

 

 

Notice of Objection

 

You only would file a Notice of Objection if you have been audited and you disagree with the results of your audit.  In your case it sounds like there has simply been an error on the "keying" of your 2011 return. 

 

 

I went through this same situation with CRA a few years ago.  It is a slow process but eventually it gets resolved. 

[roundball100]

It may be as simple as not having filed the "T1A- Request for Loss Carryback" form.

[Uccmal]

Thanks guys.

 

I think it was a keying error.  The used the final number, after the 50% was already calculated. 

 

It was applied against 2008 gains which was also 50% inclusion rate so it should have been a 1:1 calculated.  Instead they halfed it again, after my software had already halfed it. 

 

As you suggest roundball I will try the phone call.  I paid well over 100 k in capital gains taxes after all deductions in 2008-10, so that is not the concern. 

 

A.

[Uccmal]

lol, I am the tax accountant for this case.  Value investors you know.