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Statute-Barred Tax Returns or Reassessment Period

Reassessment Period

CRA Reassessment: How Far Back Can It Go?

For individuals, trusts and Canadian Controlled Private Corporations (CCPC’s), the normal reassessment period for Canadian income taxes is three years from the date that your tax return was initially assessed. For non-CCPC’s and mutual fund trusts, this period is extended to four years. After that, the returns enter a statute barred period.

A tax return does not become statute-barred if it is not filed.

If an arbitrary assessment is issued without a return being filed, the statute-barred clock starts from the date of mailing of such Notice of Assessment.

There are many exceptions to these rules.

The following situations could extend the statute barred period by an extra 3 years:

  • Foreign reporting (Form T1135).
  • A loss carry back from a later tax year is applied to an earlier tax year. 
  • A non-arm’s length assets transaction involving the taxpayer and a non-resident.

The following situation would result in an unlimited reassessment period:

  • The taxpayer made a misrepresentation due to neglect, carelessness, wilful default or fraud. 
  • The taxpayer filed a waiver in respect of the normal reassessment period. 
  • CRA can examine a statute-barred return to determine the cost of an asset for CCA claims in non-statute barred years.
  • A court has instructed CRA to reassess a statute barred period
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Understanding CRA Arbitrary Assessments

CRA Arbitrary Assessments

What happens if you do not file tax returns? Many taxpayers believe that not filing is the safest route to take if they do not have the money to cover the amount of taxes owing.

If you fail to submit filings to CRA when required, CRA may do it for you and estimate your taxes owing. These Arbitrary / Notional tax assessments are often too high, but they are nonetheless binding unless successfully challenged by the taxpayer.

What are Arbitrary / Notional Assessments?

Subsection 152(7) the Income Tax Act and subsection 299(1) of the Excise Tax Act provide the statutory authority for CRA to issue arbitrary tax assessments.

The CRA will estimate your tax liability using a variety of available information, including income reported in prior years or information obtained through third parties and often not allowing deductions or credits to which the taxpayer would otherwise be entitled.

 This means that Arbitrary Assessments often create huge tax liabilities for taxpayers, over and above what they would actually owe if they completed and filed their own taxes.

What Can Taxpayers Do?

If you receive an Arbitrary Assessment, you have a number of options open to you.

  1. You may file a Notice of Objection with CRA, but this will not halt collections actions.
  2. You may choose to file a return yourself in an attempt to reduce your tax bill. In most cases, this will usually trigger CRA audit to ensure that your tax return is filed correctly.
  3. Finally, you may choose to simply pay the Arbitrary Assessment.