Should I pay tax owed that would be removed after adjustment


My accountant made an error for 2022 return and now CRA thinks that I owe taxes.

I hired a new accountant to file an adjustment; but it probably will take few months to be processed.

In the meantime, should I pay off the tax I “owed”, assuming it will be removed after the adjustment? Will I be asked to pay the accumulated interest even if the original tax owed is removed?

And I known there will always be the risk that the adjustment gets dragged out longer by CRA. So maybe pay off the tax now and get a refund is better option. Will I get interest for the refund?

Thank you!

Check with your accountant - he should know based on the circumstances.

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I’d have replied “+1” but it wouldn’t let me…(not 10 characters).

If it’s something I know will get reversed once they get what they want - like they disallowed FTC’s because we didn’t manage to get transcripts in time - then I generally advise clients not to pay them. All interest and penalties are reversed to the extent they would have been if it was filed that way to start with. If it’s questionable whether it will be allowed then I recommend paying it. I am fairly certain you would get interest from when you paid them to when it was refunded if it was eventually fixed - I don’t generally recommend this to clients as I don’t run across much that I am unsure whether it will be accepted or not. It’s not huge interest but probably better than a bank savings account so might be worth it just for that.

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My accountant says I should just in case. But it’s a lot of tax (my accountant said CRA made their own mistake there calculating the amount even based on the mistake in the original return, which probably won’t matter). I think I will just pay the tax now and avoid the risk there.

Thank you.

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Thank you for your advice. Do you mind me asking the reason why you generally don’t recommend your clients to pay (when you know it’s going to get reversed)?

My accountant suggested me paying first as she is not sure if CRA will still ask me for the interest. The mistake in the original return to be fixed is about residency status. I came to Canada in Sept last year as a student. My original accountant filed me as tax resident and reported my income before entering Canada, which CRA claims that they can tax after giving me some foreign tax credit. The new accountant will file a T1ADJ form for me to add my entry date and remove worldwide income, claiming me as non-resident, and file an additional non-resident tax return for record. Regarding whether it’s going to be accepted, the new accountant is fairly certain of these changes but also said that it’s never a guarantee that CRA will accept it at the first time and not making any more mistakes. According to her, CRA did my tax wrong on reassessment even based on the wrong residency.

So I think the safest bet for me is still to pay off the owed tax now and remove the risk of accumulating more interest, in case things get dragged out longer? And I completely agree on the interest part. That’s exactly what I am thinking besides my uncertainty whether CRA will refund the interest because technically it was not their fault.

Anyway, thank you very much.

I don’t recommend that you pay the tax if it is pretty much guaranteed that the CRA will reverse it. They always reverse all interest and penalties regardless of whether it was their fault or not and I have been doing this for 25+ years. Things to do with resident status however can be tricky sometimes and depending on what exactly was done this is a case where it might be better to pay the tax now and get it back later when/if they fix it. If they don’t fix it for some obscure reason related to something you haven’t told us here the interest on top of the tax can be expensive. Based on what you say however they will reverse it but it could take a lot of back and forth (months/years) and you having to submit NR74’s etc to show that you were in fact a non-resident before you arrived. In any case the CRA will pay you some minimal amount of interest on the taxes you remitted when they refund it so not a total loss. Not sure what that rate is at right now but it’s probably 1% or 2% per year.

Thanks Laurie for the very patient and detailed explanation. My situation was pretty straightforward that I have never been to Canada and stayed in US for 10 years. I did a flight transit with a transit visa probably back then.

But I think the safest bet is just to pay the tax now and get the money back later. You are right I anticipate potential back and forth and I don’t want my credit gets damaged because of this.

Thank you.

Good luck and I hope you have it back before Christmas!

Hahah thank you. I hope so too.

Hi Laurie, may I ask a follow up question? The CRA is collecting both federal and provincial taxes. When they refund, do I need to apply for refund separately from the province?

Unless the province in question is Quebec, the CRA handles the administration of both the Federal and Provincial portion of the taxes. You make only the application to the CRA. That application includes both the Federal and Provincial Portion.

If the province is Quebec, then you have a separate administative authority, similar to how you are used to handling things in the US.

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If you have the means to pay the income tax I would do that. If they refund your income tax at some point in the future they currently pay 7% interest on individual over payments; so much better than what you could earn on any bank GIC at this point.

Thank you very much!!!

7%! That is better than any fixed term savings. Thanks;