CRA Reassessment: How
Far Back Can It Go?
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.
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.
are many exceptions to these rules.
situations could extend the statute barred period by an extra 3 years:
- Foreign reporting
- 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.
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
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.
are Arbitrary / Notional Assessments?
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.
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?
you receive an Arbitrary Assessment, you have a number of options open to you.
may file a Notice of Objection with CRA, but this will not halt
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.
you may choose to simply pay the Arbitrary Assessment.