Not a week goes by that I don’t encounter the deep and continuing frustration of Canadian taxpayers experiencing the dark and mysterious world of a CRA statement of account. For most folks, the Agency’s accounting of assessments, reassessments, payments, penalties, and interest, is a labyrinthine number jungle. I routinely work with licensed and designated accounting practitioners who’ve been practising 30 to 40 years, most of whom couldn’t figure out a CRA statement of account if they tried. If they can’t figure them out, the average taxpayer hasn’t the faintest hope of doing so.
What is a Canada Revenue statement of account exactly? Ok, so… here’s where things get interesting, and frankly, a bit confusing. An Agency statement of account is a statement of all of the assessments, reassessments, debits, and credits entered into their computer system. Naturally one would think this would automatically lead to a correct account balance. Unfortunately that’s not always the case. Here’s why… The statement of account produced by the Agency’s computer system only shows what’s been uploaded into their system. That does NOT however mean that what’s been uploaded is in fact, correct. In other words, if the Agency has misallocated a payment, i.e. applied it to the wrong revenue account or the wrong period, then really, the Agency’s statement of account is just a statement of error.
Why is all of this important? That’s easy. If the Agency has misallocated payments, often this will result in an application of interest that may not be warranted. For example, a person with an HST/GST account (as well as a personal tax account) goes to make a payment on the arrears balance of their personal tax account. The Agency incorrectly applies the money to their current year HST/GST instalments. The money then sits there rather than reducing the personal tax arrears balance. Unwarranted interest then accrues on the unreduced personal tax amount.
Here’s another example, a company has a payroll account with an arrears balance for 2012, 2013, and 2014. Keep in mind, Canada Revenue Agency calculates interest, compound daily. The company makes an arrears payment which the Agency allocates to the 2014 tax debt. Depending on the amounts owed in each of these years, by applying the money to a more recent debt, greater interest might accrue on an older liability. Ideally, the arrears payments should be applied to tax only, year by year, oldest year forward.
In both examples, the Agency’s statements of account will show a balance owing, but it isn’t necessarily the right amount if payment misallocations have occurred. As far back as 2012, the Office of the Taxpayers Ombudsman identified that misallocated payments are a major problem at Canada Revenue Agency. And they’re not great at correcting them.
If you’re trying to figure out if the Agency’s numbers are correct, ask the CRA for a manually prepared detailed, period by period account reconciliation that sets out all assessments, reassessments, taxes, penalties and interest, by date. Making sure you’re paying the right amount is often the best way of getting tax payment relief. Item number 6 in the Taxpayer Bill of Rights says that taxpayers are entitled to complete, accurate, and timely information in plain language.