How Many Years Back Can the CRA Reassess Your Tax Return in Canada?

You filed your return, received a notice of assessment, and moved on. Then a letter arrives asking about a year you thought was closed. It is natural to ask how far back the CRA can actually go.

The answer depends on who you are, what the CRA says went wrong, and whether you have signed anything. This article explains the usual time limit, the exceptions, and what to think about if an auditor asks you to sign a waiver.

This article covers Canadian federal tax law, which applies in every province.

The normal reassessment period

For individuals, trusts other than mutual fund trusts, and Canadian-controlled private corporations (CCPCs), the normal reassessment period ends three years after the earlier of two dates: the date of the original notice of assessment and the date of the original notification that no tax is payable. The rule comes from section 152(3.1) of the Income Tax Act.

Mutual fund trusts and corporations that are not CCPCs have a four-year normal reassessment period instead.

Once that period ends, tax, interest or penalties cannot be assessed unless one of the listed exceptions in section 152(4) applies. Those exceptions are misrepresentation or fraud, a valid waiver, an extended period for specified items, and a taxpayer relief request.

Misrepresentation and fraud: no fixed time limit

The CRA may reassess after the normal period if you made any misrepresentation attributable to neglect, carelessness or wilful default, or committed fraud, in filing the return or supplying information. In that case there is no fixed time limit.

There are important limits on this exception:

• A late reassessment is allowed only to the extent it can reasonably be regarded as relating to the matter that triggered the exception.
• If you appeal an assessment made after the normal period, the CRA has the burden of establishing misrepresentation.
• The CRA must show at least one misrepresentation that a normally wise and cautious taxpayer would not have made, even if it was made in good faith.
• Once the right to reassess is established, the onus shifts to you on the amount.
• The CRA generally does not use this exception to reduce tax payable.

In plain words, an honest-looking mistake can still count if the CRA shows a careful taxpayer would not have made it. That is why the facts of each case matter.

Waivers, and the other exceptions

A waiver, filed on Form T2029 within the normal reassessment period, lets the CRA reassess later, but only for the matters the waiver specifies. A waiver included in the return when it is originally filed is not valid. A waiver limits the Minister's power to reassess to the matters specified in it or reasonably related to them.

Two other exceptions are narrower:

• Extra three years: the normal period is extended by three years for items listed in section 152(6), such as certain loss and investment tax credit carrybacks, and a waiver of that extended period may also be filed.
• Taxpayer relief: the CRA may reassess outside the normal period to the extent of a taxpayer relief request, but a request under section 152(4.2) must be made within 10 years of the end of the relevant calendar year.

Your return is not binding on the CRA

Under section 152(7), the Minister is not bound by a return or information supplied by or on behalf of a taxpayer, and may assess tax payable even if no return was filed or the information was inaccurate. Under section 152(8), an assessment is deemed valid and binding despite any error, defect or omission, subject to being varied or vacated on objection or appeal.

So a notice of assessment does not mean your return was accepted as filed. It is one of the dates that starts the clock on the normal period, but the Minister is not bound by your return.

If an auditor asks you to sign a waiver

A waiver gives up part of the protection the time limit provides, so treat it as a real decision. The CRA's own audit manual says a waiver should be as specific as possible, and that a waiver naming only the company and year is not in the taxpayer's favour. The CRA will not request a blanket waiver in advance of an audit, or one solely to extend audit time.

If you have signed one and change your mind, it can be revoked using Form T652. The revocation takes effect six months after the notice is filed and cannot be rescinded once filed. After that the Minister cannot assess under the waiver.

• Find out which tax years and which issues the auditor wants covered.
• Ask that the waiver name only those specific matters.
• Confirm the waiver is filed within the normal reassessment period.
• Keep a copy of anything you sign and note the date.
• Talk to a lawyer or accountant before signing.

What to do next

Start by finding the date on your original notice of assessment, and any original notification that no tax is payable, since the normal period is counted from the earlier of the two. Then work out which category you fall into: individual, trust, CCPC or another corporation.

If the CRA has contacted you about an older year, note which exception, if any, it relies on. Do not assume the time limit has passed, and do not assume it has not. A lawyer or accountant can check the dates, the exception and the scope of any proposed waiver before you respond.

Frequently asked questions