Folks of all ages can be adversely affected by a government audit. The Canada Revenue Agency (CRA) has broad discretion and tools the department can use to rip apart one’s tax return, and ensure the government is receiving the income it should from its taxpayer base.
Of course, it’s nearly impossible for most individuals to go their entire lifetimes without seeing an audit. They happen, and they’re set to be randomized to a certain extent (with certain key factors driving the likelihood of an audit at some point).
Let’s dive into what key factors the CRA may consider when it comes time to deciding who gets audited, as well as how your pension income plays into the decision process.
Unreported or inaccurate income
Anything in the way of major discrepancies noted by the CRA is likely to trigger a red flag at the agency. Now, ultimately, whether these red flags turn into a full-blown audit or not really depends on a number of other factors (how many accounts have been flagged, and the order of magnitude in which certain accounts look off).
But the reality is that pensioners who under-report various sources of pension income (some individuals and households have more than one source of such income), or those who forget to include their T4A, T4RIF, or T4P forms can get flagged as under-reporting income, as they’ll have received such forms from previous employers and financial institutions.
Pension income splitting
One of the great facets of being a Canadian on a pension is the ability to split one’s pension with a spouse. Doing so can lower the overall tax burden of a specific household and result in much lower taxes owed over the course of retirement.
However, there’s always the potential for fat-fingering a line in one’s tax return, which may show a discrepancy between both spouses’ returns. Ultimately, the amount split must equal the overall pension income received during a fiscal year. If there’s any sort of difference in what’s claimed in aggregate compared to the overall pension income spouses receive, that can be grounds for an audit.
One-off deductions or withdrawals
Another key factor that can lead the CRA to audit a given household’s books is any sort of significant or unusual deduction or claim made during the fiscal year.
For example, if a senior claimed charitable donations, medical expenses, or over-contributions to retirement accounts during a fiscal year, the CRA is most likely at least going to have a look to see what’s going on. There are built-in thresholds for every line in a tax return, and if anything seems off, there’s simply a greater chance that the authorities are going to have a look. That’s the way this game is played.
For those seniors who find themselves in a higher income tax bracket (thanks in part to a pension), these risks can be elevated.
