Dealing with CRA: Audits, Objections, Statute-Barred Periods, and Penalties

An individual or a graduated rate estate has one year from the filing due date to object, not 90 days, and it is the most commonly missed deadline in practice. Work through instalment interest, late filing penalties, CRA audit powers, waivers, statute-barred periods, gross negligence penalties, the September 2025 Voluntary Disclosures Program, and taxpayer relief.

Michael Cadesky FCPA, FCA, FTIHK, CTA, TEP (Emeritus)
Hugh Woolley CPA, CA, TEP
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Michael Cadesky and Hugh Woolley

Dealing with CRA: Audits, Objections, Statute-Barred Periods, and Penalties

The reassessment was posted to My Account, nobody saw it, and collections called four months later. Ninety days had run. Except that for an individual the deadline was one year from the filing due date, which almost nobody applies. That distinction is worth the whole file, and it is one line in a lifecycle full of them.

Administrative errors are systematic rather than isolated. A practitioner who computes an instalment base wrongly does it for every corporate client with a dividend refund, misses the same statute-barred date every year, and files every objection on the wrong deadline. Interest runs at the prescribed rate plus 4%, is not deductible, and carries a further penalty once it passes the threshold. None of this is substantive tax planning, and it costs more clients more money than most planning ever saves them.
  • check_circle Statute-barred periods under subsections 152(3.1) and 152(4). The full table by taxpayer type and issue, from three years for an individual, trust, or CCPC through the six-year extensions for transfer pricing, GAAR without a disclosure form, and loss carrybacks, to non-resident withholding tax which is never barred.
  • check_circle Notices of objection under subsection 165(1). The 90-day rule, the one-year-from-filing-due-date rule for individuals and graduated rate estates that is routinely missed, Form T400, the late filing application, and the additional requirements that bind a large corporation.
  • check_circle Instalment interest and the section 163.1 penalty. The prescribed rate plus 4% compounded daily and not deductible, the further penalty once instalment interest passes the threshold, the safe instalment calculations, and the dividend refund that must be added back to the instalment base.
  • check_circle Penalties: subsection 163(2) gross negligence, repeated understatement, information returns, and section 163.2 on the advisor. Who carries the burden of proof at each level, the due diligence defence that has emerged in the case law, the T1135 and T1134 penalties that escalate to a percentage of fair market value, and the new GAAR penalty.
  • check_circle Audit powers under sections 231.1 and 231.2, and waivers under subparagraph 152(4)(a)(ii). Analysis that CRA can now require to be created, the owner interview, high net worth teams, subsection 152(7) net worth assessments, Form T2029 waivers, and revoking one on Form T652.
  • check_circle The Voluntary Disclosures Program as revised in September 2025, and taxpayer relief. The five conditions, the six-year and ten-year reach, prompted against unprompted interest relief, Form RC199, and the Regulation 600 election list that decides whether a fairness application on Form RC4288 can succeed at all.

The Tax Lifecycle, From Both Sides

The program follows one taxation year around a full cycle, twice. The outside is what CRA sees and does. The inside is the work the firm does alongside it. The material is organized on this structure rather than as a list of topics, which is why it arrives in the order the work does.

01 Planning and Preparation
Outside: What CRA Sees
  • Year-End Planning
  • Prepare Information
  • Estimate Balance of Tax Owing
  • Compute New Instalments
Inside: The Firm's Work
  • Document and Enact Planning
  • Scheduling System
  • Working Paper File
02 Filing and Payment
Outside: What CRA Sees
  • Prepare and File Tax Return
  • Pay Remaining Balance
Inside: The Firm's Work
  • Review Process
  • Client Communication
  • Adopt and Document Positions
  • Special Reports to CRA (RUTT)
03 Assessment and Verification
Outside: What CRA Sees
  • Review Assessment
  • Answer Review Queries, Information Requests
Inside: The Firm's Work
  • Compile Information for CRA
04 Audit and Reassessment
Outside: What CRA Sees
  • Handle Audit
  • Contest Adjustments and Penalties
  • Review Reassessment
Inside: The Firm's Work
  • Research Issues
  • Client Management
05 Objection and Litigation
Outside: What CRA Sees
  • File Objection
  • Submit Supporting Material
  • Litigation
Inside: The Firm's Work
  • Pay Tax in Dispute, Yes or No
  • Retain Specialist
  • Retain Tax Litigation Counsel
cached
Statute Barred, Records Retention, and back to Year-End Planning

The cycle runs five or six years rather than twelve months, depending on how the return is assessed and whether there is a dispute, so three or four taxation years for the same client sit at different points at any moment. The long tail is at the end, where several years are open at once and none of them are closed yet.

What You'll Learn

Sixteen sections, built around the lifecycle of a taxation year rather than around topics. Year-end planning, payment and filing, assessment and verification, audit, objection, litigation, statute-barred, and record destruction, with the penalties and relief provisions that attach at each stage.

expand_more The Tax Lifecycle: A Taxation Year From Year-End Planning Through Assessment, Audit, and Objection to Statute-Barred and Record Destruction

The organizing structure of the program, viewed from the outside as CRA sees it and from the inside as the firm works it.

  • The outside sequence Year-end planning, preparing information, estimating the balance of tax owing, computing new instalments, preparing and filing the return, paying the remaining balance, reviewing the assessment, answering review queries and information requests, handling the audit, contesting adjustments and penalties, reviewing the reassessment, filing the objection, submitting supporting material, litigation, statute-barred, and records retention.
  • Where an estimate is actually needed Only for corporations and June 15 filers, since for an individual and a trust the balance is due on the filing due date regardless of any filing extension.
  • Why the assessment arrives so fast CRA now commonly assesses within days, which compresses the window in which an error can be caught before it becomes an assessed position.
  • The inside sequence Documenting and enacting the planning, the scheduling system, the working paper file, the review process and client communication, adopting and documenting positions, special reports to CRA, compiling information for CRA, researching issues, client management, the decision whether to pay the tax in dispute, retaining a specialist, and retaining tax litigation counsel.
  • What the review process is really for Evidence of due diligence if CRA later asserts a misrepresentation attributable to carelessness or neglect, and the discharge of professional responsibility with the client accepting responsibility for accuracy and completeness.
  • The long tail A lifecycle runs five or six years, not twelve months, so three or four taxation years are typically open at any moment for the same client.
  • Why risk has risen More aggressive verification supported by risk assessment models including AI, greater complexity with a strengthened GAAR, and the expansion of special reporting forms with penalties for non-filing.
expand_more Year-End Planning: Owner-Manager Remuneration, Subsection 15(2) Debit Balances, AMT, and Backdating Against Effective Dating

Four decisions with hard deadlines, and the documentation practice that creates risk for the practitioner personally.

  • Owner-manager remuneration Determined before the corporate year end and before the calendar year end, then documented on T4 and T5 slips by the end of February to reflect what was actually done.
  • Capital gains and losses Losses of an individual or a trust crystallized by December 31 to be applied against gains in the year or carried back.
  • The AMT position A critical year-end item for any client with large investment income, capital gains, or leveraged positions.
  • Subsection 15(2) A shareholder debit balance at the corporate year end repaid within 12 months or generally included in income.
  • Effective dating Legitimate where the underlying agreement was genuinely reached on the stated date and the parties intend legal effect from then.
  • Backdating Creating a document that purports to have been executed earlier than it was, which is not legitimate and can amount to misrepresentation or worse.
  • Where the line blurs Minutes and dividend resolutions, with the governing principle being that the document must reflect when the decision was actually made.
  • Why it matters more now Auditors have become sophisticated at identifying documents prepared after the fact, and advice implemented in December sits very differently from the same advice implemented in February.
expand_more Instalments and Balance Due Dates Under Sections 153, 156 and 156.1: Individuals, Trusts, Corporations, and Deceased Taxpayers

The mechanics that generate the most avoidable interest in general practice.

  • Individuals Balance due April 30, quarterly instalments March 15, June 15, September 15, and December 15.
  • The threshold exception No instalments where the instalment threshold is not exceeded, measured on net tax owing for the year or for each of the two preceding years, with a lower threshold in Quebec.
  • The safe haven Paying the amounts on CRA's instalment reminder protects against interest whether or not CRA's calculation was right, though the amounts can be recalculated if a prior year is reassessed.
  • The two safe calculations 25% of the prior year's tax quarterly, or the first two instalments on the second preceding year with the last two catching up to the previous year's base.
  • Basing instalments on the current year Available where the current year will be lower, with no recourse against interest if the estimate proves wrong, which makes an unanticipated capital gain the usual cause of failure.
  • The common June 15 error A June 15 filer's tax is due April 30, not June 15, and the extension does not extend payment; the spouse or common-law partner gets the same filing extension but the box on the return must be checked.
  • Deceased taxpayers No instalments required after the date of death, filing at the later of the normal date or six months after death, with the balance still due April 30 except where death falls late in the year.
  • Trusts No instalments in practice, with the balance due 90 days after the year end.
  • Corporations Balance due two months after the year end, three months for a CCPC claiming the small business deduction where the conditions are met, with twelve monthly instalments.
  • The short year gross-up A corporation with a short taxation year has its instalment base grossed up to what a full twelve months would have produced.
  • Part IV tax Due on the balance due date rather than by instalment.
  • Holidays and weekends Due dates extended automatically to the next business day, but only for a federal holiday.
expand_more Interest Under Subsection 161(1), the Section 163.1 Instalment Penalty, and the Dividend Refund Trap in the Instalment Base

How the rate actually works, and the one calculation that quietly produces deficient instalments across a whole corporate client base.

  • The rate Built on the prescribed rate, being the 90-day treasury bill rate rounded up, with refunds at the prescribed rate plus 2% and amounts payable at the prescribed rate plus 4%.
  • Daily compounding Adds far less than practitioners assume, which is worth knowing when explaining exposure to a client.
  • What makes it expensive The interest is not deductible.
  • The corporate refund rate Corporations receive the prescribed rate on refunds without the additional 2% that non-corporate taxpayers get.
  • Section 163.1 A further penalty of roughly 37.5% of instalment interest, applying once instalment interest for the year exceeds the threshold.
  • Fixing a missed instalment Paying another instalment early or increasing a later one to offset the interest, which CRA will net against the charge.
  • The dividend refund trap A dividend refund claimed in the prior year does not reduce the instalment base for the current year, so relying on prior year tax net of the refund produces deficient instalments and interest.
  • The mirror risk Basing instalments on a current year estimate that assumes a dividend refund which then comes in smaller, because insufficient dividends were paid or the RDTOH balance was lower than expected.
  • Interest on refunds Not computed until 30 days after filing or 30 days after an adjustment request, which sharply limits interest on a loss carryback refund.
  • Subsection 164(5) A loss carryback does not erase interest already accrued or a late filing penalty, so filing on time without paying beats filing late and carrying a loss back.
  • Subsection 161(11) Interest on a penalty runs from when the penalty was effective, not from when it was assessed, so a late information return penalty assessed years later carries interest all the way back.
expand_more Filing Deadlines and Late Filing Penalties Under Subsections 162(1) and (2): The 17% and 50% Rates and the Large Corporation Taxable Capital Penalty

The penalty that no longer requires tax to be owing.

  • The deadlines in one place April 30 for individuals, June 15 where the individual or the spouse carries on business with payment not extended, six months after death where later with payment extended, 90 days after the year end for trusts, and six months after the year end for corporations.
  • The basic penalty 5% of the tax owing plus 1% per month to a maximum of 12 months, so 17%.
  • The repeat penalty 10% plus 2% per month to a maximum of 20 months, so 50%, where a return was late filed in any of the three preceding years.
  • Large corporation defined Taxable capital over $10 million.
  • The second penalty A further amount computed on taxable capital per month to a maximum of 40 months, in addition to the regular penalty.
  • Why that changes the advice The taxable capital component applies whether or not tax is owing, so a large corporation in a refund position that has always filed late without consequence now has exposure.
  • Incomplete information File with what you have and amend later, paying additional tax if needed, because late filing is far more costly than late payment.
  • The rule that follows from that Do not file late.
expand_more Withholding and Remittances Under Sections 153 and 227: Payroll, HST and GST, Non-Resident Withholding Tax, and the Automatic 10% Penalty

A strict liability area where the remedy is simply to pay a few days early.

  • Payroll remittances Monthly, weekly, or biweekly depending on the size of the payroll, with the timing set out in the regulations and complex enough to warrant a payroll guide or a payroll service.
  • HST and GST for a calendar year filer A one-time payment due March 31, a quarterly filer paying each quarter with the balance due April 30, and a monthly filer at the end of the following month.
  • Non-resident withholding tax Due the 15th of the following month.
  • Subsection 227(9) An automatic 10% penalty for late remittance, with no requirement for CRA to establish anything beyond lateness.
  • Received, not mailed The date of receipt by CRA governs, so the mailing date is irrelevant.
  • Payment mechanics Generally by electronic transfer, with CRA not accepting cheques over $10,000.
  • The practical recommendation Remit a few days early, particularly on non-resident withholding tax, to remove any question of dispute.
expand_more E-Filing Under Subsection 150.1(2) and the CRA Verification Process: Form T183, Review Letters, and Foreign Tax Credit Reviews

The second tax season that runs from April to December, and why it exists.

  • The e-file requirement Commercial preparers must obtain an e-file number and e-file unless an exception applies, with the signed Form T183 retained.
  • What cannot be e-filed Deceased taxpayer returns, non-resident individual returns, and part-year departure returns, which must be paper filed with receipts normally attached.
  • Why verification exists On an e-filed return CRA receives coded lines and totals only, with no visibility into the list of donations, medical receipts, capital gains details, or the composition of a deduction.
  • How selection works A risk assessment model weighing the amount and the type of claim, CRA projects that rotate between years, and a random element, with AI in prospect.
  • The mechanics A form letter with a 30-day response window, extensions obtainable, and denial of the deduction or credit as the standard consequence of an inadequate response.
  • The recurring targets Donations, medical expenses, employment expenses with the certified conditions of employment, interest and carrying charges, treaty exempt income, shareholder loan repayments, foreign tax credits, support payments with the registration form and the agreement or court order, and the nature of other income for CPP purposes.
  • What CRA is actually testing Proof of payment and documentation rather than the substantive validity of the claim, which is why complying is easier than objecting later.
  • The foreign tax credit problem Claims above a small amount are reviewed almost every year, proof of foreign tax paid is requested shortly after filing, and where the foreign return is on extension the information does not yet exist, with a limited number of CRA extensions before the claim is denied and an objection becomes necessary.
  • The client conversation A verification letter is not evidence that the CPA erred, and the work of responding is chargeable, which is a conversation to have in the engagement letter rather than after the letter arrives.
expand_more Assessment, My Account Under Subsections 244(14.1) and (14.2), and the 90-Day Objection Clock

The clock runs from the date on the notice, not from the day anyone reads it.

  • How notices arrive now Electronically to clients registered for the online account, with an email saying a document is available rather than anything by mail, and automatically for corporations.
  • The failure pattern Verification letters and a reassessment posted, none of it noticed, and the matter surfacing when collections calls, by which time interest has accumulated and the objection period may have run.
  • Reading the assessment The description on the notice is often a coded line reference that does not identify what was changed or why, so a line by line comparison against the filed return is the only reliable method.
  • Why the date matters twice It sets the objection deadline and it bears on whether the year is statute-barred.
  • The two practical responses Set up alerts where the firm has consent to access the client's account, and advise clients without consent to monitor the account after filing.
  • The other option Withdrawing consent to electronic communication where correspondence is likely to be missed.
expand_more Audits Under Sections 231.1 and 231.2: Scope and Strategy, the Owner Interview, Compliance Orders, High Net Worth Teams, and Subsection 152(7) Net Worth Assessments

Audit volumes rose from roughly 69,000 in 2024 to roughly 84,000 in 2025, and the powers rose with them.

  • What is requested Electronic accounting records including the detailed general ledger and adjusting entries, bank accounts sometimes including personal accounts of the shareholder and family, the minute book, and more, usually on a 30-day deadline with an extension normally available.
  • The new power that matters most CRA can now require that information and analysis be prepared, where previously it could only obtain records that already existed.
  • The interview CRA will often ask to interview the owner, major shareholder, or a trustee, and letting the client attend without a professional present is a serious mistake.
  • Compliance orders Available under sections 231.5(1) and 231.7 with a significant penalty for failure to comply, while the proposed requirement to answer under oath was dropped.
  • The standard CRA applies Any information that might be relevant, which because relevance cannot be assessed until the information is produced leaves very little scope to withhold anything.
  • The four questions before responding What type of audit is this, what is the stated scope, which CRA team is conducting it, and what are the identified risk areas.
  • Audit posture Provide facts clearly without editorializing, save the argument for the proposal letter or the objection, do not volunteer more than was requested, and do not let the client debate the merits with the auditor.
  • Working with the checklist Auditors follow mandated audit programs, which is what makes anticipating the requests possible.
  • Using AI on the audit letter Redacting identifying information and running the letter through a closed platform for a first-pass analysis of likely issues, with a firm policy on which tools may touch client information.
  • High net worth audits Teams of auditors assigned to individuals and families identified by net worth and offshore indicators, running two to three years, extremely intrusive, and aimed at large reassessments rather than minor items.
  • Subsection 152(7) net worth assessments Opening net worth plus income less living costs plus non-taxable amounts, with any unexplained difference asserted as unreported income and the burden on the taxpayer to disprove it.
  • Where they go wrong Inheritances, the non-taxable portion of a capital gain, principal residence proceeds, and borrowed money, with CRA assumptions and omissions worth a detailed review even where the conclusion is broadly right.
expand_more Waivers Under Subparagraph 152(4)(a)(ii): Form T2029, Narrowing the Issues, Revocation on Form T652, and Whether CRA Can Be Sued

A client decision with no good option, and a mechanism most practitioners forget exists.

  • Why the request comes CRA has run out of time to select a taxpayer or to complete an audit before the year closes.
  • What a waiver does Removes the statute-barred limit so CRA can continue, on Form T2029.
  • Narrowing it A waiver can be specific to certain issues rather than opening the year fully, and the scope is a matter for negotiation.
  • If the waiver is refused Expect an arbitrary reassessment issued to keep the year open, which is then contested by objection.
  • Why refusing is not the easy answer The appeals division lacks the resources to audit and may refer the matter back to audit, lengthening the process considerably.
  • Revocation A revocation on Form T652 makes the waiver valid for only six months from filing, which CRA dislikes and the taxpayer is entitled to do.
  • Suing CRA Effectively impossible, with the standard requiring malicious and vindictive conduct, and CRA answering that it was carrying out its statutory duties.
  • Service complaints Rarely useful and capable of producing a more experienced and less sympathetic team on the file, with undue delay not caused by the taxpayer as the one situation where a complaint is worth making.
  • The asymmetry Where the taxpayer is wrong there is interest and possibly penalties; where CRA is wrong there is refund interest at a lower rate which is itself taxable, and no mechanism to recover professional fees.
expand_more Privilege, File Documentation, and Mandatory Reporting: Sections 237.3, 237.4 and 237.5, Forms RC312 and RC3133, T1134, T1135, T106, and Trust Schedule 15

Everything a CPA writes down is obtainable, and some of it must now be volunteered.

  • Privilege and CPAs Not available unless the CPA is engaged by legal counsel to advise counsel, and lost where the CPA communicates directly with the client.
  • What privilege covers Communications and opinions, not documents, and it belongs to the client who may waive it.
  • Claiming it CRA will often challenge a claim of privilege, and the claim itself can look like concealment.
  • The documentation dilemma Researching and recording risk areas discharges professional responsibility and simultaneously builds a roadmap into those risk areas for CRA.
  • The look over your shoulder test Write the file as though CRA were reading it, with particular care over email.
  • Notifiable transactions under section 237.4 Designated transactions posted by the government, the substantially similar test construed broadly, notification within 90 days by the advisor, promoter, and client, with the practical reality that notifying can itself precipitate an audit.
  • Reportable transactions under section 237.3 An avoidance transaction plus any one of the three C's, being contingency fee, confidentiality, and contractual obligation in the form of a guarantee or indemnity, filed on the same form, with a ruling providing no relief from the obligation.
  • Reportable uncertain tax treatments under section 237.5 Audited IFRS statements, a carrying value of assets of $50 million or more, and a T2 filed, reported on Form RC3133, with the difference required to arise from uncertainty rather than from ordinary accounting and tax differences.
  • The rest of the disclosure set T1134 for foreign affiliates, T1135 for foreign property, T106 for non-arm's length transactions with non-residents, transfer pricing documentation under section 247, and Schedule 15 for trusts.
  • Expanded CRA powers Subsection 231.1(1) on audit information, subsection 231.2(1) on requirements, and subsections 231.2(2) and (3) on third parties.
expand_more Proposal Letters, Facts Against Law, and Contesting an Established CRA View

Most audits are decided on facts, and the argument that wins is almost never that CRA's interpretation is wrong.

  • The proposal letter Issued during the audit with typically 30 days to respond, by which point CRA's position is usually entrenched absent an obvious error.
  • The strategic question Whether to reply substantively or simply lay the groundwork for an appeal.
  • The factual analysis What are the facts, does CRA agree, and does CRA have them correct.
  • The legal analysis The interpretation of the rules, what the CRA views, folios, guides, and audit manual say, whether the position varies from CRA practice, and what the case law holds.
  • What auditors actually work from The audit manual, guides, views, and folios rather than the Income Tax Act itself, which is why knowing the CRA materials matters more than knowing the section.
  • Mixed questions Most significant disputes, income against capital on a property sale being the standard example, turn on facts and common law together.
  • Why attacking the interpretation fails Auditors are not empowered to deviate from CRA policy and appeals officers are reluctant to, so the realistic venue is the Tax Court.
  • The strategy that works Distinguishing the facts of the file from the fact pattern the CRA view was developed for, so the taxpayer falls outside the rule rather than arguing the rule is wrong.
expand_more Reassessment and Notices of Objection Under Subsection 165(1): The 90-Day Rule, the One-Year Rule for Individuals and Graduated Rate Estates, Form T400, and Large Corporations

The deadline most practitioners state incorrectly, and what has to be in the objection before an appeals officer opens the file.

  • The general rule 90 days from the date of the reassessment.
  • The rule that is commonly misunderstood An individual or a graduated rate estate has one year from the filing due date of the return, which can leave months of room after the 90 days have run.
  • Late filing an objection Accepted where the taxpayer intended to object, the argument is not frivolous, the application was made as soon as circumstances permitted, and it falls within one year of the deadline.
  • The adjustment route Whether filing an adjustment request to generate a fresh reassessment reopens an objection window, and the separate CRA position allowing an individual up to ten years to request a change.
  • Paying the tax in dispute Stops interest accruing, is not an admission of weakness, and tends to make the client markedly more objective about the dispute.
  • Collections Contact typically within 30 to 60 days, before the objection period has even expired, stopped by advising that an objection is being prepared.
  • What objecting does not stop Collection of payroll and non-resident withholding tax and HST, which are treated as trust funds, and 50% of the tax in dispute for a large corporation.
  • The form Form T400 with a statement of facts and reasons, technically addressed to the Chief of Appeals, with an online filing equally valid.
  • How much to file In complex matters an objection drafted almost as a notice of appeal would read, with the reassessments, factual background, further facts, reasons, and the issues to be decided.
  • Timing of the supporting material Everything on file before an appeals officer first looks at it, because first impressions carry weight in a dispute.
  • Large corporation requirements The tax, interest and penalty in dispute specified, other affected balances identified, and every argument set out, because arguments not raised may not be admissible later.
expand_more Statute-Barred Periods Under Subsections 152(3.1) and 152(4): The Full Table, Misrepresentation From Carelessness or Neglect, and Tax Attributes

Measured from the original assessment, not from the last one, and it is a defence rather than a formality.

  • The starting point The date of the first assessment of the year, with everything after it being a reassessment.
  • Three years Individuals, trusts, and Canadian controlled private corporations.
  • Four years Non-CCPCs, including substantive CCPCs.
  • Six years Transfer pricing with a non-arm's length non-resident, deemed resident trusts, a GAAR reassessment where no disclosure form was filed, and a year opened by a loss carryback.
  • The T1135 extension Where the form has an omission and foreign income was unreported, the period extends from three years to six.
  • Never barred Non-resident withholding tax, subject only to treaty limitations, and any year affected by misrepresentation attributable to carelessness, neglect, or wilful default.
  • How the misrepresentation argument runs CRA asserts it and the taxpayer must disprove it, which puts the conduct of both the client and the CPA directly in issue.
  • Where the year stays closed Reasonable care and diligence exercised, with an error that is genuinely an error.
  • The distinction that decides it Whether the alleged misrepresentation is factual or a considered position on an arguable question of law, since a documented reasonable position is difficult to characterize as careless.
  • What supports the defence Analysis on file, a real review process with the client, and the observation that electronic signature of the return without a review call is weak evidence of diligence.
  • Tax attributes Whether loss carryforwards, RDTOH, GRIP, and CDA balances are themselves statute-barred by the year they arose, where the case law is unclear and the better argument is that they are not, which is how a closed year gets attacked through a later capital dividend.
expand_more Penalties: Information Returns, Repeated Understatement, Subsection 163(2) Gross Negligence, Section 163.2 Culpable Conduct, Evasion, and the GAAR Penalty

Six categories, each with its own burden of proof and its own defence.

  • Information return penalties Typically a fixed amount built from a base plus a daily charge to a cap, applied per form, and per foreign affiliate on the T1134.
  • The escalation Where the failure or the error is deliberate or grossly negligent, the penalty can rise to a percentage of fair market value, which is where a long-undisclosed foreign portfolio becomes ruinous.
  • Repeated understatement Income omitted twice in four years above a threshold amount, at 10% federally with a provincial equivalent, capped at 50% of the actual tax on the omitted income.
  • The due diligence defence A strict liability penalty in form, with a defence developed in the case law that succeeds on genuine care and a credible explanation and fails on large amounts, recklessness, or returns that were never properly checked.
  • Gross negligence under subsection 163(2) 50% of the tax understated, with the burden on CRA and a standard well beyond ordinary negligence, close to wilfulness or blatant disregard.
  • How it is judged Conduct assessed as at the time the return was filed, so later documentation does not assist, with the amount involved and the sophistication of the taxpayer both relevant.
  • The limit on the penalty It cannot apply where no return was filed, since there is no false statement.
  • Reliance on an advisor A grossly negligent preparer does not make an unaware taxpayer grossly negligent, subject to limits.
  • Evasion A deliberate act to understate income or overstate expenses, often with false records, carrying up to 200% and up to five years imprisonment, proved beyond a reasonable doubt and heard in the provincial superior courts rather than the Tax Court.
  • Section 163.2 civil penalty Assessed against the advisor for culpable conduct, a standard below gross negligence but close to it, with CRA carrying the burden and the penalty rarely applied in practice.
  • The valuation limb The penalty exposure where a valuation falls outside the parameters, and the defence that the value was reasonable, made in good faith, and not built on assumptions known to be unreasonable.
  • The GAAR penalty A new penalty on a GAAR reassessment, avoided by disclosing the transaction, which of course raises audit risk.
  • Illegal business Profits remain taxable, and a CPA who discovers the activity should obtain legal advice.
expand_more The Voluntary Disclosures Program as Revised in September 2025, Taxpayer Relief on Form RC4288, and the Regulation 600 Election List

Substantially more generous than the previous program, and the one route left once a deadline has genuinely gone.

  • The five conditions The disclosure must involve interest or a penalty, the filing must be at least a year late, the disclosure must be complete, it cannot be the second disclosure on the same matter, and payment arrangements must be made.
  • The bar Unavailable once CRA has contacted the taxpayer to begin action on the matter.
  • The reach Generally six years for a domestic matter and ten years where assets or income are outside Canada.
  • Unprompted against prompted Full penalty relief either way, with substantially greater interest relief on an unprompted disclosure, and a general CRA letter short of an audit making the disclosure prompted.
  • The form and the guidance Form RC199 and the revised information circular.
  • The exclusion Retroactive tax planning, meaning an attempt to elect or designate differently after the fact rather than to correct a genuine omission.
  • The CPA's problem Whether a suspected issue must be reported to CRA, whether the client can still be serviced if a disclosure is refused, and when to consult counsel or the provincial institute.
  • Taxpayer relief CRA may extend a filing deadline, waive a penalty, reduce or waive interest, and occasionally waive tax in hardship cases.
  • The process Form RC4288 describing the circumstances, review by a committee, then a second review or judicial review in the Federal Court, with the CRA file obtained under access to information being the key to a second review.
  • What succeeds A valid reason such as health, hardship, a complex issue and an unsophisticated taxpayer, a good compliance record, a first occurrence, death or age, or undue CRA delay; reliance on incorrect CRA information; and an application that rings true and is just and equitable.
  • The deadline extension limit Only elections listed in Regulation 600, including the replacement property rules, change of use elections, elections out of a rollover, the capital dividend account election, the preferred beneficiary election, and the estate loss carryback election.
  • What fails Blaming CRA or the tax system, blaming the professional, convoluted arguments, a non-compliant or aggressive taxpayer, an election not in the regulation, a provision that mandates the interest or penalty, retroactive planning, and attempts to apply a favourable decision retroactively.
expand_more Directors' Liability Under Section 227.1, Subsection 160(1) Joint and Several Liability, Records Retention Under Subsection 230(1), Non-Resident Rental Elections, and Tax Court

The end of the lifecycle, and the exposures that outlive the taxation year.

  • Directors' liability Personal liability for unremitted payroll tax, HST, and non-resident withholding tax, with no statute-barred period except that it cannot apply more than two years after a director resigns.
  • The defence and the practical step A due diligence defence with a high threshold, and formal resignation where the company is in difficulty and remittances are at risk.
  • Subsection 160(1) Joint and several liability where property was transferred for less than fair market value to a non-arm's length person, which reaches a gift to a spouse or children, with parallel exposures for shareholders receiving dividends and trustees making distributions.
  • Access to information both ways CRA reaching bank records, utilities, land titles, credit card statements, cell phone records, emails, and social media, with automatic exchange with many countries and treaty access to around 120.
  • The taxpayer's side of it Asking for the CRA working papers at the end of an audit, the separate penalty report where a penalty was assessed, and a formal request on the access to information form, which is free but slow enough that it may arrive after the objection deadline.
  • Records retention Six years generally, with permission required to destroy earlier, and permanent records such as those supporting the cost of a fixed asset excluded from destruction.
  • The strategic side of retention Destroying records is a legitimate limit on what can later be produced, and destroying anything relevant to a pending or foreseeable audit is never acceptable.
  • Non-resident rental income Withholding on gross rent, against filing and electing to be taxed on net rental income, with the filing window and the administrative practice allowing a single late election covering prior years.
  • Tax Court An appeal within 90 days of confirmation or of the objection, with the informal procedure available below the tax and loss thresholds, no discoveries, no precedent value, and representation by a CPA or self-representation permitted.
  • General procedure and above Formal court process requiring counsel or self-representation, an appeal to the Federal Court of Appeal only for an error of law or a palpable error of fact, and the Supreme Court hearing very few tax cases and only on leave.
  • The engagement letter Scope by return, year, and entity, the limitation of liability, and the limitation on who may rely on the work, updated annually and whenever the scope changes.

Learn Directly from Tax Experts

Michael Cadesky
Michael Cadesky
FCPA, FCA, FTIHK, CTA, TEP (Emeritus)

Managing partner at Cadesky Tax, practising since 1980 and a Fellow of CPA Ontario. Past governor of the Canadian Tax Foundation, past chair of STEP Canada and STEP Worldwide, and past chair of the CPA Canada Tax Committee for Small and Medium-Sized Enterprises. Co-author of 11 books on tax subjects.

Hugh Woolley
Hugh Woolley
CPA, CA, TEP

Independent tax consultant who has taught income tax for over 30 years. Hugh has written courses for CPA Canada and over 10 papers for the Canadian Tax Foundation and STEP Canada. From 1990 to 1992 he worked at the CRA's Rulings Directorate in Ottawa writing butterfly tax rulings, and is a past Governor of the Canadian Tax Foundation.

Frequently Asked Questions

How long does CRA have to reassess a tax year in Canada? expand_more

The normal reassessment period runs from the date of the original assessment, not the most recent one: three years for an individual, a trust, or a Canadian controlled private corporation, and four years for a non-CCPC or a substantive CCPC. It extends to six years for transfer pricing with a non-arm's length non-resident, a deemed resident trust, a GAAR reassessment where no disclosure form was filed, a year opened by a loss carryback, and a year where a T1135 omission accompanied unreported foreign income. Non-resident withholding tax is never statute-barred, and neither is a year affected by misrepresentation attributable to carelessness, neglect, or wilful default. The course works through the full table and the misrepresentation argument.

How long do I have to file a notice of objection? expand_more

Generally 90 days from the date of the reassessment. For an individual or a graduated rate estate, the deadline is the later of that and one year from the filing due date of the return, which is commonly misunderstood and often leaves room after the 90 days have run. A late objection can still be accepted on application where the taxpayer intended to object, the argument is not frivolous, and the application is made within one year of the deadline.

What does this course cover? expand_more

The full administrative lifecycle of a taxation year: year-end planning, instalments and balance due dates, interest and the instalment penalty, filing deadlines and late filing penalties, payroll and HST remittances, e-filing and the CRA verification process, electronic assessment, audits and CRA information powers, waivers, mandatory reporting forms, proposal letters, notices of objection, statute-barred periods, the full penalty regime, the Voluntary Disclosures Program as revised in September 2025, taxpayer relief and fairness applications, directors' liability, records retention, and the Tax Court process.

Can I start right away? expand_more

Yes. Recorded live on June 11, 2026 and available on demand. Register and begin immediately at your own pace.

Does this course provide verifiable CPD? expand_more

Yes. You will receive a verifiable CPD certificate for 2.5 hours of instructional learning upon completion.

What is included with registration? expand_more

The full seminar recording, the slides, the detailed notes, the Technical Corner, and a knowledge assessment with a presenter walkthrough video, with one year of access from your date of registration.

Who is this course for? expand_more

CPAs and tax professionals who file returns, compute instalments, respond to CRA verification letters, handle audits, file objections, or advise clients facing penalties. The material is procedural rather than substantive, which makes it relevant across every client base rather than only to specialist files.

Is there a cost to register? expand_more

Registration is $150 CAD, a one-time payment with no subscription required.

$150CAD
verified 2.5 Verifiable CPD Hours
calendar_month Recorded: June 11, 2026
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Included in Registration
  • videocam Seminar Recording
  • slideshow Slides
  • description Detailed Notes
  • build Technical Corner
  • quiz Knowledge Assessment with Walkthrough Video
lock_open 1 Year Access to Program and Materials