The CRA and Statute-Barred Years
Most Canadian taxpayers assume that once three years pass after receiving a notice of assessment, it’s safe from CRA review. But that isn’t always the case. The CRA can reassess a statute-barred year if it believes the return involved a misrepresentation due to neglect,, carelessness, wilful default or fraud.
At Kirshen Tax Law, our Toronto tax lawyer helps taxpayers challenge reassessments of old years that should have been closed and push back when CRA overreaches issuing reassessments pursuant to section 152(4) of the Income Tax Act.
What Is a Statute-Barred Year?
A tax year becomes statute-barred three years after the CRA issues the original Notice of Assessment. For mutual agreement procedures and certain corporate returns, the limitation period may be extended to four years. For GST/HST, the limitation period is four years.
Once that period passes, the CRA cannot reassess unless they meet the requirements of subsection 152(4)(a).
When Can the CRA Reassess a Statute-Barred Year?
Under section 152(4)(a), the CRA may reassess a statute-barred year if:
- The taxpayer made a misrepresentation and that misrepresentation is attributable to neglect, carelessness, or wilful default; or
- The taxpayer committed fraud in filing the return or supplying information.
This is a high threshold. Not every error amounts to a misrepresentation, and not every misrepresentation is attributable to neglect, carelessness or wilful default.
In these cases, the CRA must be able to justify the reassessment, which contrasts with the ordinary rule where taxpayers bear the burden of explaining their own affairs.
Common Examples
We’ve seen CRA attempt to reassess old years in cases involving:
- Undisclosed business income;
- Misclassified real estate transactions;
- Improper expense claims; or
- Unreported offshore income.
Sometimes the CRA has a basis to reassess. But often, they rely on assumptions or incomplete records to justify opening old years.
What If You’re Reassessed?
If you receive a reassessment for a statute-barred year, you can challenge it. At Kirshen Tax Law, we:
- Review CRA’s justification under section 152(4);
- Analyze whether the alleged misrepresentation meets the legal test;
- Raise procedural and evidentiary objections;
- File a Notice of Objection or appeal to the Tax Court of Canada; and
- Argue that the reassessment is invalid due to CRA not meeting the threshold required.
The burden is on CRA to prove they had grounds to open the year. A Toronto tax lawyer can hold them to that standard.
Don’t Ignore Old-Year Reassessments
Even if the year is old, the consequences are real. The CRA may reassess for tens of thousands of dollars, impose penalties, and add interest going back several years. You may also lose access to certain appeal rights if you don’t respond properly.
Challenging a statute-barred reassessment often requires legal argument and case law analysis, not just additional documents.
Kirshen Tax Law Can Help
If the CRA is trying to reassess a statute-barred year, don’t assume they’re allowed to. A Toronto tax lawyer at Kirshen Tax Law can assess whether CRA has the legal right to reopen your return, and we can respond quickly to protect your position. Book a free consultation today.
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.