Once you file your 2008 income tax return, the CRA will enter the information into their computer system. As part of this process, after you have filed your return but before the CRA issues a Notice of Assessment to you, your return might be selected for a preassessment review. Generally the preassessment review process involves the CRA requesting support documentation from you to validate specific deductions or credits that you may have claimed, such as copies of your charitable or political donation receipts. As a pre-assessment review typically only involves you providing to the CRA support documentation to validate specific amounts you claimed, the person who prepared your tax return for you is generally in a much better position to assist you as they know the documentation upon which they relied to prepare your return. Accordingly, pre-assessment reviews are not included in the scope of the Hours of Service provided under the Plan.
If you are a partner in a partnership, there are two sets of expenses that are used to calculate your income or profit from a partnership. The first are those expenses incurred by the partnership. The second are those expenses incurred by you personally for which you are not reimbursed by the partnership.
If you are a 2007 Member of the Plan and also a member of a partnership and your partnership is audited by the Canada Revenue Agency, the audit or reassessment of your partnership is beyond the scope of the Plan unless all of the members of your partnership are also 2008 Members of the Plan. However, if you are personally audited by the Canada Revenue Agency and the Canada Revenue Agency challenges the deductibility of those expenses you incurred personally for which you were not reimbursed by the partnership, such an audit or reassessment based upon the deductibility of such personal partnership expenses falls within the scope of the Hours of Service provided by the Plan.
On lines 251, 252, and 253 of your income tax return, you are permitted to deduct from your taxable income losses that you may have incurred and reported in your income tax return filed in respect of previous years. The CRA will, at times, review these losses and deny all or part of them on the basis that the amount of the loss you reported in the prior year was incorrect. While the CRA’s audit and reassessment may be in respect of your current tax year, the basis for the reassessment (i.e. the denial of the prior years’ losses) is based upon information you reported when you filed your income tax return for the prior years. If you are a Member of the Plan in respect of the Taxation Year under audit and were also a Member of the Plan in respect of the prior year(s) in which the losses were initially reported, the Plan will assist you with respect to the audit and reassessment by the CRA in accordance with the terms and conditions of the Plan for the relevant year. However, if you were not a Member of the Plan in respect of the prior Taxation Year(s) in which you initially reported the loss, any audit or reassessment based upon a denial of the prior-year’s losses does not fall within the scope of the Hours of Service provided under the Plan.
The same applies with respect to loss carrybacks. If you report a loss in the current Taxation Year and then apply to adjust a prior year’s income tax return to carry the current year’s loss back, the Plan will provide the Hours of Service to assist you with any audit or reassessment of the loss carryback but only if you are a Member of the Plan in respect of both the current Taxation Year (the year in which the loss was incurred) and the Taxation Year to which you are requesting the loss carryback be applied.
The Income Tax Act (Canada) allows individuals who invest in petroleum, natural gas, or mining ventures but who did not actively participate in the venture to deduct expenses related to the venture. These expenses are claimed on line 224 of your income tax return. If you claim exploration and development expenses in these circumstance, it is based upon information provided to you by the principals of the venture. As these expenses which are claimed as a deduction by you are determined by others, audits, reviews, and tax reassessments based upon a denial of a portion or all of these expenses fall outside the scope of the Plan.
The Canada Revenue Agency administers the federal government’s Scientific Research & Experimental Development (SR&ED) program. It is a tax incentive program that provides for an investment tax credit (ITC) for qualified expenditures incurred for SR&ED engaged in Canada. Audits, reviews, and reassessments by the CRA of SR&ED expenses and claimed ITCs fall outside of the scope of the Plan.