What a CRA Reassessment After an Audit Means
When the CRA completes an audit, it typically issues a proposal letter outlining its intended adjustments. If the taxpayer does not successfully respond, or if the CRA is not persuaded by the response, it will issue a Notice of Reassessment. At this stage, many taxpayers turn to a Toronto tax lawyer to assess the audit findings and prepare a strategic response.
This reassessment reflects the CRA’s final audit position. It may include increased income, denied deductions, GST/HST adjustments, or the application of penalties, including gross negligence penalties in more serious cases.
Unlike routine reassessments, audit-based reassessments are usually supported by detailed reasoning and assumptions about your financial affairs. These assumptions matter because they shift the burden onto the taxpayer to disprove them.
Why Audit Reassessments Are More Difficult to Challenge
A reassessment following an audit is more difficult to dispute because the CRA has already reviewed your records and formed a position. In many cases, the auditor will have relied on indirect methods, inconsistencies in records, or gaps in documentation.
The CRA is also entitled to make assumptions of fact when issuing a reassessment. In any subsequent objection or Tax Court appeal, those assumptions are presumed to be correct unless you can show otherwise. This is a critical difference that many taxpayers do not fully appreciate.
Where the CRA alleges misrepresentation attributable to neglect, carelessness, or wilful default, it may reassess beyond the normal three-year period. In more aggressive cases, gross negligence penalties may also be applied.
What You Should Do Immediately
The first step is to carefully review the reassessment and any prior audit correspondence, including the proposal letter and working papers if available. Understanding exactly what the CRA is alleging is essential.
You should then assess whether the issue is factual, legal, or both. Some reassessments turn on missing documentation, while others involve incorrect legal interpretations by the CRA.
It is important not to contact the CRA casually or provide additional information without a clear strategy. Anything you say or submit can shape the record that will later be relied on in the objection or in court.
A Toronto tax lawyer can review the audit file, identify weaknesses in the CRA’s assumptions, and determine the strongest path forward.
Filing a Notice of Objection
If you disagree with the reassessment, you must file a Notice of Objection within 90 days of the date of the Notice of Reassessment. This deadline is strict (though there is a one-year extension that can be requested in some circumstances).
The objection is your opportunity to challenge both the facts and the law underlying the CRA’s position. A well-prepared objection does more than state disagreement. It directly addresses the CRA’s assumptions, provides supporting evidence, and frames the legal arguments clearly.
If the objection is unsuccessful, the next step is an appeal to the Tax Court of Canada. Many audit reassessments ultimately proceed to litigation, particularly where significant amounts or penalties are involved.
Common Issues in Audit Reassessments
Audit-based reassessments often arise in situations involving unreported income, shareholder benefits, denied business expenses, GST/HST on real estate transactions, and net worth assessments.
In some cases, the CRA may rely on indirect audit methods, such as lifestyle or net worth analyses, to estimate income. These methods can be challenged, but doing so requires a detailed and organized evidentiary response.
Where penalties are assessed, particularly gross negligence penalties, the CRA must meet a high threshold. These penalties are frequently contested and can often be successfully challenged with the right approach.
Kirshen Tax Law Can Help
A CRA reassessment after an audit is not the end of the process. It is the beginning of the dispute phase, where strategy and advocacy matter.
At Kirshen Tax Law, we represent taxpayers in CRA objections and Tax Court appeals. We focus on identifying weaknesses in the CRA’s position, challenging unsupported assumptions, and presenting a clear and compelling case.
If you have received a reassessment following a CRA audit, contact us for a free consultation. Working with an experienced Toronto tax lawyer can make a significant difference in the outcome.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
Disclaimer
The content on this website, including articles and blog posts, is provided for general informational purposes only. It reflects the laws and regulations as of the date of publication, which may have since changed. This content is not intended to serve as legal advice and should not be relied upon as such. Tax laws and situations can be complex and unique to each individual. The information provided may not apply to your specific circumstances. For personalized advice regarding your tax or legal matters, we recommend consulting a qualified lawyer.