This is the first post in an (un)planned series of posts documenting what it is like to go through an audit. Yes, Revenue Canada has flagged you humble narrator for review.
To be frank, I am not sure why my tax return has been selected for audit. My return is quite simple: My world income is declared, and it is written off due to a tax-treaty between Canada and Japan. I declare my dividend, interest, and distribution income from Canadian and foreign sources, and that is pretty much it. It’s been pretty much the same for a number of years.
The CRA website gives some criteria for who may be selected for audit, and it seems to be computerized based on taxpayer groups, which is based on type of return, occupation, gross income etc.. It doesn’t give me a lot of answers, as I am unsure of what sort of group I would fall into. I know a lot of Canadian teachers here in Japan, and I have yet to meet one that has filed a tax return while working abroad.
That being said, there are a couple of ideas I have as to why I would have been selected:
- My income is too high to avoid tax: Even though there is a tax treaty in place, the CRA may feel that I don’t pay enough in tax. Perhaps. But the main culprit here is the fact of a remarkably strong Japanese yen during 2009 that made it look as if I made more money than I actually did (world income is calculated using the average exchange rate during the year). Two years ago, for example, I made more nominal yen, but the exchange rate was reversed, making it look like I was a pauper.
- My wife doesn’t have a Social Insurance Number, yet I tried to declare her as a dependant spouse: Well, there is no avoiding this one. We don’t live in Canada yet, so she doesn’t have a SIN, but we live entirely off my income, so I feel this is a justified declaration. This issue caused problems last year when I tried to claim the HST rebate (though we currently dwell in Japan, the bulk of investments are held in Canada, thus will be subject to the HST, and we contribute a good amount to the economy when we are back).
Those are the only two things that really stand out as being possible red flags. The other possibility is that being audited is just like jury duty… it’s bound to happen to everyone sometime.