Letter from CRA – Tax return review?

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Question

Dear Phil,

I seem to have a real mess on my hands!!  You probably hear that often, but my situation seems to be unique.

I have spent a great deal of time over the past 3 months in researching Cross Border tax information because I received a Notice from CRA regarding my 2019 Canadian Tax Return.

That is where things started to become unravelled for me and lead to much “Cross-Border Tax Reporting” enlightenment…..  I watched all of your YouTube videos and became more shocked with each one..  I am so fortunate to have found you on the internet.  I have read as much as I can find from various other sources as well, CRA website included.

I am a US Citizen, and now also a Canadian citizen.  I am 65 years old.  My husband recently turned 68 years old.

I came to Canada on my US Passport September, 2015, with my husband, Jake, who is a Canadian citizen by birth.  Jake and I had worked as Independent Contractors, separately and unknowing to each other, for a time with the same US based company (Florida).  We met at one of the large national meetings, fell in love and married in July 2015, with intentions of living in the U.S.

The visit to Canada in September, 2015, after the wedding, was to meet his mother and 2 adult children, visit his home, start packing things to sell-give away, or ship to US, etc.  We figured we would be back in the States by Thanksgiving.

Jake went for an annual medical appointment in early October with his personal physician of many years, with the intent of requesting medical records, informing his physician of the move, etc..

A lump was discovered at the base of Jake’s neck and a biopsy was taken which was found to be cancer.  After extensive follow-up testing, Jake was diagnosed with Stage 4, inoperableterminal, non-small-cell lung cancer which had spread to the brain and lymph system.  We were told he had 10 to 12 months to live, at best.  He nearly died twice during that time, but endured 2 rounds of 8-week chemo treatments and a round of radiation to brain and lymph node areas.  In late 2017 he was put on a nightly oral chemo pill which he has taken ever since.  The treatments and medication has all been covered under BC Medical.  He has recently been declared medically disabled retroactive to 2013.

I remained in British Columbia to oversee Jake’s health and medical treatments, and his home care until 2015, when he was then allowed, at this point in his recovery process, to receive (in advance) 3 months of his nightly chemo pills, allowing us to travel to the U.S. for a family visit with my children and grandchildren.  All of my business records, invoices, receipts, past taxes, etc.,  had been (and still were) locked away in storage in Cottonwood, AZ all of this time; so,  I couldn’t file my U.S. taxes for 2012, 2013, 2014, & 2015, until late 2016 (with lots of penalties and interest).  I thought I should have been able to claim some type of hardship but the accountant in Cottonwood wasn’t on board with that.  I have found a receipt covering the filing of an FBAR in 2016, but I don’t know what it covered.  I have filed my own taxes for U.S. since then.  Not sure if any of these have been correct when the backdrop of cross-border status is considered..

I am not sure what my status was during the 2012 – 2016 period; either on the U.S side or Canadian side; or, Arizona vs British Columbia side.  I applied for several visa extensions and then Canadian Permanent Residency, and received that on October 28, 2015.  Since our first trip back to the U.S. in 2015, I have been back and forth with basically 6 to 7 months in U.S and 5 to 6 months in Canada up until a return to British Columbia on April 1, 2020. This is when we returned quickly to get Jake back to British Columbia under the Canadian Citizen Covid Mandate else his  BC Medical status would be in jeopardy.

After the return of April 1, 2020, I initiated application for Canadian Citizenship and that was received on May 18, 2022.

When the travel mandates were lifted in fall of 2021, Jake and I travelled back to the States for the winter and to attend my grandson’s wedding.  While there, CRA mailed me a letter to my BC address, dated Feb 10, 2022 requesting additional information in support of my 2019 tax return.  The 2019 tax return as well as all previous Canadian tax returns beginning 2013 had been filed by Jake’s tax preparer so I would have thought that he would receive the letter as well, but that was not the case.  I didn’t receive the forwarded mail until the week prior to our flight back to Colorado on May 5th and then back to BC the end of April.  I called the contact person from CRA listed on the letter and explained my travel situation.  She gave me an extension to reply by April 22nd I believe.  I had no idea what to think or do, so I also called the person who prepared the taxes.  He had retired in 2020 and was no longer doing taxes but suggested that I write a letter and include a copy of my 2019 U.S. taxes and that should be good, or if not they would reply with more directions.  I wrote the letter, included a copy of my 2019 U.S. taxes, and some other information that was asked for, and mailed that by FEDEX expedited mail from Colorado on April 12th I believe.

After our return to British in late April, I contacted an accountant in BC who was referred by a neighbour.  He knows very little about any cross-border details but told me I should just wait for CRA to respond before taking additional action.  So, I did.

Last week I received mail from CRA containing my copy of the 2019 U.S. taxes that had been sent and comments regarding each of the T1 sections of concern; those being Line 13500 Net Self Employment Professional Income (Loss), and Line 12600 Net Rental Income (Loss).  Before responding, and after reading as much “cross-border” information as I have, I feel that I need some professional advise and help regarding how to resolve this issue and the entire situation that has developed over the past 10 years.  My eyes have been opened on so many levels of concern at this point regarding this immediate issue and longer term planning as well.

Please contact me with  your thoughts.

Answer

Hi XXXXXX

Thanks for the email and I’m very sorry to hear about your husband’s health challenges. I’ll do my best to provide some general information below, however we may need to schedule a proper cross-border tax and investment consultation.

Also, thank you for being a member of the YouTube channel, much appreciated.

Some thoughts on your situation:

  • Given you have filed your own US returns over the last few years it’s highly possible that some of the returns may need adjusting, especially if FBARs have not been filed or properly filed. We can review the returns to see if adjustments are necessary.
  • It’s not very clear what CRA was reviewing in their request. Based on the information contained within it sounds like it’s a foreign tax credit review.
  • Can you please send me the last correspondence you received from CRA as this will give me a much better understanding of you situation.

If CRA is reviewing your foreign tax credits it’s important to assess whether US taxes have been properly calculated and filed. If you can, please send me PDF copies of your Canadian and US tax return for the year in question.

I hope that helps.

Regards

Phil

 

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