Responding to a CRA Proposal Letter
If you’ve received a CRA proposal letter, it means the Canada Revenue Agency (CRA) has completed its audit or review and intends to change your tax return. At this stage, consulting a Toronto tax lawyer can make the difference between avoiding reassessment or facing years of disputes.
At Kirshen Tax Law, we help clients use this critical window to challenge the CRA’s position and reduce or eliminate proposed adjustments before they become final.
What Is a CRA Proposal Letter?
A proposal letter is issued after the CRA has completed its audit or review and before it issues a Notice of Reassessment. The letter outlines the proposed changes to your tax return and gives you a limited opportunity, usually 30 days, to respond.
Proposal letters arise in many types of audits, including but not limited to:
- GST/HST input tax credit denials;
- Business expense audits;
- Real estate transactions;
- Unreported income or net worth audits;
- Shareholder benefits; or
- Director’s liability or payroll audits.
It is a routine step in the audit process, but also your last chance to change the CRA’s mind before a formal reassessment is issued.
Why the Proposal Stage Matters
Once a Notice of Reassessment is issued, your only recourse is to file a Notice of Objection and wait months or years for CRA Appeals to review it. But during the proposal stage, the file is still with the auditor, where a Toronto tax lawyer can raise legal and procedural issues. You may be able to:
- Clarify factual misunderstandings;
- Submit additional documents;
- Raise legal arguments the auditor missed;
- Narrow the scope of adjustments; and
- Prevent gross negligence penalties from being assessed.
Many reassessments can be avoided or significantly reduced if the proposal is handled strategically.
How to Respond Effectively
At Kirshen Tax Law, we respond to CRA proposal letters by:
- Reviewing the auditor’s working papers and assumptions;
- Identifying procedural or legal errors in their position;
- Gathering missing documentation or records;
- Drafting a legal submission that explains your position clearly and professionally; and
- Communicating directly with the auditor and their team leader.
Timing is critical. If the deadline passes, the CRA will issue the reassessment as planned and you may lose the chance to resolve it without having to proceed to the Notice of Objection stage.
What Happens After You Respond?
After you respond to the CRA proposal letter, the auditor may:
- Ask for further information or documentation;
- Issue a partial reassessment;
- Reject your response and move ahead with the proposed reassessment; or
- Close the audit with no further action.
If they issue a Notice of Reassessment, you have 90 days to file a Notice of Objection and escalate the dispute to CRA appeals, which is why careful handling at this stage is so important.
Either way, your proposal response becomes part of the file and sets the tone for any future dispute with CRA.
Kirshen Tax Law Can Help
If you’ve received a CRA proposal letter, don’t wait for the reassessment to land. A Toronto tax lawyer at Kirshen Tax Law can help you respond strategically, reduce the proposed tax and penalties, and protect your position from the start.
Contact us today to book a free consultation.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
Disclaimer
The content on this website, including articles and blog posts, is provided for general informational purposes only. It reflects the laws and regulations as of the date of publication, which may have since changed. This content is not intended to serve as legal advice and should not be relied upon as such. Tax laws and situations can be complex and unique to each individual. The information provided may not apply to your specific circumstances. For personalized advice regarding your tax or legal matters, we recommend consulting a qualified lawyer.