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

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.

Benefits being reviewed?

If you receive a letter from CRA that the agency is reviewing your benefits, it could be a routine check.

As per CRA, it sends about 350,000 such letters every year to “make sure Canadians are receiving the benefits and credits they’re entitled to.”

The letter or questionnaire may ask for documents to confirm that the information in our records is right and up to date. For example, we may ask you to validate your marital status, where you live, and who cares for your children.

It’s important that you reply and send all the information requested as soon as possible. This will help the CRA review your file quickly and easily. If you need help, we’ll work with you to answer any questions or concerns you may have.

Taxpayers usually have 45 calendar days to respond, and CRA says it will tell taxpayers how to send documents in its letter.

If you can’t get the documents we’re asking for or if you need more time to reply, it’s important that you call the number provided in your letter.

If you don’t reply, CRA says that “your benefits will stop and you may be asked to repay benefits that were previously sent to you.”

GST/HST New Housing Rebate and New Residential Rental Property Rebate

If you are buying a new residential complex from a builder, the builder will collect the GST/HST at the time of sale. The CRA provides relief of a portion of the tax collected by the builder in the form of rebates: New Housing Rebate and New Residential Rental Property Rebate.

The rebates are divided into two components – federal and provincial.

If the property is in a GST province like Alberta, etc., you only concern with the federal rebate calculated as 36% of the 5% GST on properties valued $350,000 or less. The federal component of the rebate is phased out for properties valued between $350,000 and $450,000. If exceeding $450,000, there is no federal rebate available.

If the property is in an HST province like Ontario, etc., there is an additional rebate of the provincial component equal to 75% of the tax that is capped depending on the province (in Ontario, the provincial portion of the rebate is capped at $24,000). Unlike the federal component, the provincial component is not subject to the phase out rule.

It’s important to understand the difference between the GST/HST New Housing Rebate and the GST/HST New Residential Rental Property Rebate. This will ensure a complete and correct rebate application.

GST/HST New Housing Rebate

If you bought the new home with the intention for use as your (or your relation’s) primary place of residence, the New Housing Rebate is for you.

You or your relation must live in the new home as the primary place of residence for at least the first twelve months. In order to prove that the new home is your primary place of residence, make sure to change your address with CRA and address on your government issued IDs after moving in.

If you sell the home before the initial twelve months from closing, you must pay the rebate back in full.

If you are buying an investment property, this rebate does not apply to you.

GST/HST New Residential Rental Property Rebate

If you’re a buyer who intend to rent out the residential complex on a long-term basis, you must file for a New Residential Rental Property Rebate.

The property must be rented out for more than one year before resell to another buyer. Otherwise, The rebate must be paid back in full.

Getting It Right

Regardless of which rebate you claim, there is a two year limit in which you can make the claim. However, the CRA is not restricted to that two year limit for assessing errors related to rebate claims.

Therefore, if a new housing rebate is incorrectly claimed in place of a new residential rental property rebate and the error is identified following the close of the rebate claim period, the CRA may be in a position to demand repayment of the rebate plus interest and penalties.

Ensuring the GST/HST on your real estate investment is handled correctly can prevent a lot of heartache later.

Professional Services

BBTS provides professional services with the GST/HST new housing rebate and new residential rental property rebate.

With BBTS, clients can rest assured that application paperwork is submitted correctly and always on time.