FAQs
CRA Questions Answered by a Toronto Tax Lawyer
Dealing with a CRA audit, reassessment, or tax dispute? This FAQ page provides clear answers from an experienced Toronto tax lawyer. We explain your rights and options when facing a CRA audit, Notice of Objection, Tax Court appeal, or collections action. Whether you’re considering a Voluntary Disclosure or seeking relief from penalties, our Toronto tax law team helps you understand the process and protect your interests. For a free consultation, contact Kirshen Tax Law today.
Table of Contents
CRA Audit
CRA audits are often triggered by red flags on your tax returns such as unreported income, unusually high deductions, inconsistent filings, or large GST/HST refund claims. The CRA also uses data matching with T-slips, real estate records, and lifestyle indicators. In some cases, audits are conducted randomly.
If the CRA audits you, respond promptly but carefully. Review all requests, gather supporting documentation, and avoid providing information beyond what is asked. Audit responses shape the scope and outcome of the review, so accuracy and consistency are critical.
For most taxpayers, the CRA can reassess up to three years from the date of the original notice of assessment. However, if the CRA alleges misrepresentation, fraud, or gross negligence, there is no time limit.
Ignoring a CRA audit or reassessment can lead to default assessments, bank account freezes, wage garnishments, and asset seizures. If you’ve received a CRA letter, acting immediately can help prevent costly enforcement actions.
A lifestyle audit is when the CRA compares your reported income with your lifestyle, expenses, and assets. If the CRA thinks you’re spending more than you’re earning, they may use indirect methods like net worth or bank deposit analysis to reassess and recalculate your income. These audits often lead to large tax bills and gross negligence penalties.
CRA audits can range from a few months to several years depending on the complexity of the issues involved. Simple desk audits may conclude within 3 to 6 months, while detailed field audits, particularly those involving real estate, corporations, or net worth reviews, often take 12 to 24 months or longer.
Delays commonly arise where the CRA requests extensive documentation, conducts third-party inquiries, or expands the audit to additional years or entities. During this period, taxpayers remain exposed to reassessments, penalties, and interest.
Notice of Objection
Yes. You typically have 90 days to file a notice of objection if you disagree with a reassessment. In certain cases, you may have up to one year to request an extension. However, after 90 days, the CRA can begin collections, so acting quickly is critical.
Yes, but you’ll need to request an extension of time to object. The CRA’s standard deadline is 90 days from the date of the reassessment. If you missed it, you can apply within one year of the original deadline but you must show that you had a valid reason for the delay.
While the CRA aims to review objections within 180 days, delays are common, especially for complex cases. Processing times can extend well beyond a year depending on backlog and file complexity.
For income tax matters, collections are generally suspended while the objection is in process. However, for GST/HST or payroll source deductions, collections may continue.
Tax Court of Canada Appeals
Yes. If your objection is denied or confirmed, you still have the right to appeal the reassessment to the Tax Court of Canada. Depending on the amount at stake, your case may qualify for the informal procedure or require a general procedure appeal.
An Informal Procedure Appeal is designed to be faster, more cost-effective, and less procedurally complex than the General Procedure. After you file a Notice of Appeal, the Department of Justice files a Reply, documents are exchanged, and settlement discussions typically occur. If unresolved, the matter proceeds to a short hearing before a Tax Court judge, often lasting one day or less.
A General Procedure Appeal follows a formal litigation process. After the Notice of Appeal is filed, the Department of Justice serves a Reply and the parties exchange documents. Discoveries, motions, and case management steps may follow, with settlement discussions occurring throughout. If unresolved, the matter proceeds to trial where witnesses testify and are cross-examined before a Tax Court judge.
Yes. The vast majority of CRA disputes resolve before reaching a hearing. Matters can settle after an appeal is filed with the Tax Court of Canada well before the hearing. Once litigation begins, the Department of Justice will often engage in settlement discussions where factual or legal weaknesses exist in the CRA’s position. Strategic advocacy, supporting documentation, and legal submissions frequently lead to reduced assessments, penalty deletions, or full reversals without the need for a hearing.
In most cases, no. Most Tax Court appeals resolve through settlement negotiations well before trial. This can occur at any stage, after the appeal is filed, during document exchange, or even on the eve of trial. While we prepare every case as though it will proceed to hearing, the practical reality is that very few taxpayers ultimately need to testify in Court.
CRA Collections & Tax Debt
Yes. The CRA has powerful collection tools, including freezing bank accounts, garnishing wages, and seizing assets.
The CRA doesn’t negotiate tax debts the way a private creditor might, but payment arrangements may be available based on your financial situation. You can also apply for taxpayer relief to reduce penalties and interest. However, the CRA will not reduce the actual tax owed unless the underlying assessment is incorrect. Acting early is important before enforcement begins.
Working with a Toronto Tax Lawyer
No. Hiring a tax lawyer demonstrates that you are taking your tax matter seriously. The CRA regularly deals with legal counsel, and representation helps ensure your rights and position are properly protected.
Yes. Conversations with a tax lawyer are fully protected under solicitor-client privilege. This means you can discuss your tax situation freely without fear of disclosure.
Voluntary Disclosures Program
If you don’t file, the CRA can assess you based on estimates, charge penalties, and begin collections, including freezing bank accounts or garnishing wages. You may also lose access to benefits and, in serious cases, face prosecution for non-compliance.
The Voluntary Disclosures Program (VDP) allows taxpayers to correct past tax errors before the CRA contacts them. If accepted, you may avoid penalties, interest and prosecution. However, not all cases qualify, and the CRA has tightened its VDP rules.
Maybe. The Voluntary Disclosures Program (VDP) is only available if your disclosure is voluntary. If the CRA has already initiated enforcement or audit action related to the issue, eligibility may be lost. However, a CRA letter does not automatically disqualify you, and eligibility depends on the specific facts and timing.
There is no statutory limitation on how far back a Voluntary Disclosure may extend. However, the program only provides penalty and partial interest relief for the most recent ten years.
Under current administrative policy, the CRA typically requests six years for domestic disclosures and ten years where foreign income or assets are involved. Determining the appropriate disclosure period requires careful analysis to ensure the disclosure is complete while maximizing available relief.
Tax Residency
Not necessarily. Canada taxes based on residency, not citizenship. If you leave Canada and properly sever your residential ties, you may no longer have to file a Canadian return on your worldwide income. However, your departure must be planned carefully to avoid issues like the departure tax (or postponing it through an election) and ongoing filing obligations.
If you become a non-resident while owning Canadian rental property, 25% of the gross rent must generally be withheld and remitted to the CRA each month. By filing an NR6, withholding can instead be calculated on net rental income, reducing cash-flow impact. A Section 216 non-resident election must still be filed annually to report the income and reconcile taxes paid.
Departure tax arises when an individual ceases to be a tax resident of Canada. Upon departure, the Income Tax Act generally deems the individual to have disposed of most worldwide assets at fair market value, triggering capital gains tax on accrued but unrealized gains. Commonly affected assets include shares, investment portfolios, cryptocurrency and offshore assets. Real estate located in Canada is excluded from the deemed disposition but remains taxable on actual sale. Planning opportunities, including elections, deferrals, and security arrangements, may be available to reduce or defer the tax liability.
TFSA & RRSP Penalty Taxes
Contributing to a TFSA while a non-resident triggers a 1% per month penalty tax for as long as the contribution remains in the account. Non-residents do not accumulate TFSA contribution room, meaning any contribution made while non-resident is automatically excess. RRSP contributions may still be permitted if unused room exists, but tax efficiency and reporting implications should be reviewed.
Third Party Assessments
Yes. The Canada Revenue Agency (CRA) can assess directors personally for unremitted GST/HST and payroll source deductions, and related penalties. This is known as a director liability assessment, and it applies even if the corporation is dissolved or bankrupt.
In addition, shareholders and related individuals may also be personally liable under Section 160 of the Income Tax Act (or Section 325 of the Excise Tax Act) if they received dividends, assets or other payments from a corporation with outstanding tax debts and did not pay fair market value in return.
Yes. If a corporation fails to remit GST/HST or payroll source deductions, the CRA can assess directors personally under what’s called a director’s liability assessment. Even if you weren’t actively involved in day-to-day operations, you may still be held liable unless you resigned more than two years before the assessment or can show you acted with due diligence.
Yes, under Section 160 of the Income Tax Act (or Section 325 of the Excise Tax Act for GST/HST debts), the CRA can assess you for someone else’s tax debt if you received a gift, transfer or asset from them for less than fair market value. Even if you didn’t know they owed taxes, you can be held responsible up to the value of what you received.
CRA Builder Audit & GST/HST Housing Rebates
It depends. Most personal-use home sales are exempt, but if the CRA considers you a “builder” (even if you only built or renovated one property), they may say GST/HST applies. This can result in large assessments and penalties. We help clients dispute CRA audits related to real estate transactions and clarify whether the sale was taxable.
The CRA may deny a housing rebate if it believes you did not intend to use the property as your primary residence, rented the property instead, or failed to meet occupancy or ownership requirements. If your rebate was denied, the decision can be reviewed and objected to where CRA’s position is unsupported.
For GST/HST purposes, a “builder” is defined broadly and extends well beyond traditional developers. An individual may be considered a builder if they construct, substantially renovate, or hire others to build or renovate a property for sale. The classification can apply even where only one property is involved, particularly where there was an intention to sell, profit, or flip the property. Where the CRA determines builder status applies, the sale may become subject to GST/HST, and housing rebates may be denied or reassessed.
Possibly. GST/HST builder rules apply far beyond large developers. An individual can be considered a builder even if they constructed or substantially renovated a single property. If the CRA concludes the work was done with the intention of selling, GST/HST may apply to the sale, potentially resulting in significant tax, interest, and denied housing rebates.
A renovation is generally considered ‘substantial’ where 90% or more of the interior of the existing structure has been removed or replaced, excluding elements such as the foundation, exterior walls, and roof. Where this threshold is met, the property may be treated similarly to new construction for GST/HST purposes, potentially triggering builder status and taxable sale or self-assessment obligations.
Yes. CRA builder audits commonly arise several years after a property sale.
It is not unusual for taxpayers to first hear from the CRA 2 to 4 years after closing, particularly where land registry data, rebate claims, or audit projects identify the transaction for review. By that stage, the CRA may assess uncollected GST/HST, deny rebates, and apply interest and penalties.
Tax Lawyer vs. Accountant
Tax lawyers and accountants play different but complementary roles. Accountants focus on preparing tax returns and offering tax planning services. Tax lawyers, on the other hand, deal with legal matters such as CRA audits, notices of objection, Tax Court appeals, and voluntary disclosures. One key difference is that communications with a tax lawyer are protected by solicitor-client privilege, offering an extra layer of confidentiality.
Tax Lawyer Near Me
No. We serve clients across Canada and internationally. Most tax matters can be handled by phone, email, or video conference.
Kirshen Tax Law focuses exclusively on tax law, representing individuals and businesses in CRA audits, reassessments, notices of objection, Tax Court appeals, tax litigation, and voluntary disclosures.