My Tax Audit Ended With Me Owing Money

resampled_20120530-CRA-Canada1I don’t want or need to use an accountant but I have to because of my divorce.  He is a nice accountant who keeps everything fair when crediting my children’s tuition tax credits between the children, myself and the children’s father.

The accountant has been a big help to me over the years because he will answer any type of tax question I have at any time during the year at no extra charge.  He was a giant help when I was audited and did not charge me for any of that either.   It all ended badly for me but it wasn’t my accountant’s fault.  

When I first separated I was still living in the matrimonial home with the children while the children’s father lived somewhere else.  When it came time to do my taxes I informed the accountant of this and he said that I could deduct one of the children as an extra deduction called equivalent to marriage.  It meant a larger tax return for me and a larger monthly child tax credit cheque from the government as well.

I lived in the matrimonial home with the children for a time before it was sold and the children and myself moved in to our current home.  Then the audit happened.

My accountant informed me that it was common for the Canada Revenue Agency (CRA) to audit recently separated couples.  Some couples lie about being separated to get larger tax returns and it was all routine.  I was separated all right and had the lawyer’s bills to prove it.

The problem is lawyers bills and communications between the lawyers representing the battling sides was not what CRA wanted.  Lots of couples are apparently legally separated and still living together.    The CRA wanted proof of everyone’s addresses in the form of utility bills or licenses or a notarized letter from the soon-to-be-ex-husband and his lawyer stating where the soon-to-be-ex was living.

My lawyer sent all my bills and communications to my house.  His lawyer sent all his bills and communications to the place he was living.  His lawyer sent one letter to my house.  It said that because the CRA audit was only involved my tax return the soon-to-be-ex had no legal obligation to participate and he would not be participating.

I was able to provide lots of proof of where the children and myself lived at any time.  Utility bills, report cards for the children, letters from my lawyer outlining the dates of the separation and the various communications between his lawyer and my lawyer as we attempted to hammer out a separation agreement were all forwarded to  CRA.

Pleading phone calls to the CRA staff in charge of my audit and letters and documents were sent over a time period of several months.  They were always  professional yet kind and sympathetic but as the correspondence in all forms continued it became obvious that without the declaration from soon-to-be-ex and his lawyer the audit would not go in my favour.

I offered to pay for his lawyer to write the letter.  Our mutual accountant called him and explained that it was pretty standard stuff and that all he had to do was write a letter and that writing a letter would be a pretty decent thing to do.

Again came the response from his lawyer that because the audit was about my taxes  he was not legally obligated to participate.

The accountants wife called him a nasty name and I cried and wrote a cheque on my HELOC (home equity line of credit) for about $2,000.

Because my tax return was recalculated the amount that I had received in monthly child tax credit cheques was recalculated and those cheques were withheld for me until the amount of the over payment was recouped by the government.

I never discuss the ex with my children.  That is not good parenting.  My sons hardly ever read these posts and I have cautioned them not to read this one.  I have always taken the high road and not talked badly of him even though both boys are men now and in their 20s.   After all he didn’t do anything wrong and he was under no legal obligation to participate in my audit.

I am taking my pile of tax return stuff to the accountant tomorrow and I still get angry when I think about the unfairness of the audit. The accountants wife will probably call the ex a bad name.  She does every year.

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12 Responses to My Tax Audit Ended With Me Owing Money

  1. David says:

    I am sorry about that. Did you turn in any tax deductions?

    • janesavers says:

      I have some RRSP contributions but not much because I am trying to get rid of the HELOC. I hope to get enough money to pay the accountant but I don’t expect too much more than that.

      My accountant charges me $200 plus HST for our 3 returns.

  2. I am so sorry you had to pay up. $2,000 is a lot of money and it’s too bad that your ex didn’t participate, because it likely wouldn’t have taken a lot of work on his end and it would have been better for your kids to have a little collaboration between their parents. You don’t deserve that!

    • janesavers says:

      I had to repay over $2,000 and they withheld other payments from me that amounted to over $1,000. All that ended up on my HELOC and I am still working to pay it off. All the ex had to do was ask his lawyer to write a letter, that I would have paid for, and they would both sign it.

      There is zero collaboration between myself and the ex. My sons are wonderful young men in spite of it.

  3. Sorry to hear about this. It never goes well when the other party will not participate, especially in something that wouldn’t even require much time.

    • janesavers says:

      I understand why the Canadian government runs so many of these checks. It is important to catch cheaters but I am still paying off my HELOC and that money that I had to repay, that money that I was entitled to, is part of that. I would have been finished with my HELOC much sooner if I had not had to repay and if I had been able to receive the monies that I was entitled to.

      He chose not to participate because it would have helped me. That angered me but I have moved on from that.

  4. Wow, what a mess! It seems like a shame that they target recently separated couples. Nothing like being kicked while you’re down!

    • janesavers says:

      I am so careful with my tax returns. There must be a mark on my file that says cheater, even though I didn’t cheat, and so they must look at my return much closer than the files of others.

      There were a lot of hurt feelings at the time. I felt like everyone at Canada Revenue Agency felt that I had lied when I knew that I was truthful. They must hear so many big fat lies every day that it would be hard to believe someone who is honest.

  5. Chris says:

    Wow, that sucks. I can’t believe there isn’t another way to “prove” this. Can’t the CRA look at his tax info and see what address is being used or something? It just seems ridiculous to ask you to prove something you have no control over. If I was in your situation I would be mad at my ex for being petty, although hopefully there’s some kind of cosmic Karma that will even things out. I would be doubly angry with the lawyer, just because I think lawyers are for the most part the trouble with society. But I would be most angry with the CRA for having such a stupid, stupid rule. Hope you can take some deep breaths and not be stressed – no point in losing sleep I suppose. Take care.

    • janesavers says:

      Thank you Chris. Everything you said was exactly what I was feeling. Sometimes you just have to give up the fight and move on or the anger will eat you alive.

      I wonder about Karma. So many people do such rotten things and continue to prosper

  6. JanJ says:

    The thing about karma is that it isn’t always tit for tat. Fate will come back to bite him but it might not be a financial bite. It may be a whole different set of trials and tribulations.

    Interesting, though, that hard-nosed people often do well when it comes to money.

    I am afraid of being audited. All of us self-employed types live with that niggling worry in the backs of our minds. How long did the process take, from start to finish?

    • janesavers says:

      It was about 4 months because I kept sending new information to the CRA and they kept politely letting my know that it wasn’t enough. Their final letter was very kindly worded and said that while I had not provided enough information for the audit to finish in my favour it was not an indication that I had misrepresented or falsely presented my circumstances.

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