How Far Back Can The CRA Go to Reassess Me?
Many clients ask me, “How long can the Canada Revenue Agency assess me for?”
Or put another way, “How long until I am safe from a CRA reassessment for any given year?”
In civil litigation the period of time that a person has to start an action is called the “limitation period”. In tax disputes, this is not referred to as a limitation period, but instead is referred to as the “normal reassessment period”.
For most Canadian taxpayers, the normal reassessment period for income tax is three years. This means that the CRA has three years from the date that your tax return for a particular year is initially assessed to reassess.
For example, if you are an individual and you filed your return for the 2008 taxation year on April 30, 2009 (i.e. on time), and the CRA issued a Notice of Assessment for that return on June 1, 2009, then the normal reassessment period for your 2008 taxation year will expire on June 1, 2012.
It is the initial assessment of a taxation year that starts the clock counting on the normal reassessment period. This means that if you do not file a return resulting in an assessment, then the clock does not begin to count and the normal reassessment period for that year will never expire.
Mutual fund trusts and corporations that are not Canadian-controlled private corporations have a four year normal reassessment period.
After that normal reassessment period has expired, you can argue that a reassessment is not valid and should be vacated. After the normal reassessment period has expired for a given year, we refer to an assessment of that year as being "statute-barred".
However, there are circumstances in which the CRA can reassess a statute-barred year. Most commonly, the CRA can reassess after the expiration of the normal reassessment period where:
1. the taxpayer signed and filed a waiver within the normal reassessment period in respect of the year; or
2. the taxpayer made a misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or supplying information.
If these circumstances apply, there is no time limit on a CRA reassessment for that year.
However the CRA must prove that these circumstances apply. In other words:
1. the CRA must produce a waiver signed by you for the relevant taxation year; or
2. the CRA must prove that you made a misrepresentation on your tax return for the relevant year and they must prove that the misrepresentation was attributable to neglect, carelessness, wilful default or that you have committed any fraud in filing the return or supplying information.
If you are reassessed more than three years after you filed a return for a taxation year it is worth investigating whether the expiration of the normal reassessment period could be a reason to have that reassessment set aside. You will have to determine when that return was initially assessed in order to figure out when the normal reassessment period expired.
If you want to rely on the expiration of the normal reassessment period you must raise that argument with the CRA Appeals Division or as a ground of appeal in your Notice of Appeal to the Tax Court of Canada.