Cartoon businessman running away from tax collector

The government wants to give the Canada Revenue Agency (CRA) more time to reassess taxpayer filings and the power to impose significant new penalties if taxpayers fail to provide information the agency requests.

The 2024 federal budget proposed amending the information-gathering provisions in the Income Tax Act to “enhance the efficiency and effectiveness of tax audits and facilitate the collection of tax revenues on a timelier basis.”

The proposed new penalties and extension of the reassessment period are “going to sting” for taxpayers subjected to an audit, said Hemal Balsara, head of tax, retirement and estate planning with Manulife in Toronto: “[If] you do ultimately get reassessed, all of a sudden, you’re not only paying that additional tax, but now you’re getting hit with the penalty.”

Under the proposals, the CRA would be allowed to issue a new notice called a notice of non-compliance. The notice would be issued when a person has not complied with CRA’s previous notices or requirements for assistance or information.

Notably, the CRA would be allowed to extend the normal reassessment period for the issue related to the notice of non-compliance by however long the notice is outstanding.

The CRA would also be allowed to extend the normal reassessment period for all taxpayers who have sought a judicial review of a requirement or notice issued by the CRA. The extension would cover the length of the review. This is generally the case now, but the rules didn’t apply to all situations.

The budget proposal also includes two new penalties.

The first would be on any person issued a notice of non-compliance, and amount to $50 for every day the notice is outstanding, up to $25,000. (The penalty would be rescinded if the notice of non-compliance is successfully appealed.)

The second penalty would apply when the CRA obtains a compliance order against a taxpayer, and equal 10% of the taxes owed. The penalty would apply only if the order relates to taxes owing of more than $50,000 in a year, and is meant to “create an incentive for taxpayers to comply with the original request for information or assistance,” the budget said.

Currently, the main consequence for ignoring a compliance order is a contempt order, “which is time-consuming to obtain and does not generally impose a material financial cost on the taxpayer,” the budget said.

If enacted, the proposals will create significant uncertainty for taxpayers, given that tax disputes can take years or decades to be settled, said Osler, Hoskin & Harcourt LLP in a report published April 16.

The CRA could issue a non-compliance notice regardless of whether a taxpayer ultimately complied with the order or whether the information gathered resulted in any additional taxes owed.

“[The proposals] would allow the CRA to impose immediate consequences if a taxpayer objects to providing certain requested information or to the timeline within which it has been requested, placing the burden on the taxpayer to demonstrate that it did everything reasonably necessary to comply or that the notice is unreasonable,” the Osler report said. “As a result, the penalty may lead the CRA to be more aggressive in issuing overly broad and potentially unreasonable requests for information or assistance.”

Further, taxpayers facing penalties could be discouraged “from advancing legitimate challenges to the scope of the CRA’s demands, even where the CRA’s request is unreasonable,” the Osler report suggested. “One would think that the better way to deal with this issue is to impose the penalty only where the CRA obtains a compliance order and the taxpayer fails to comply, rather than permitting a penalty in every case where the CRA obtains a compliance order.”

Balsara said the proposed expansion of the CRA’s information-gathering powers is consistent with other demands for more transparency from taxpayers. He cited as examples the expanded trust reporting rules, the reportable and notifiable transaction regime, and the beneficial ownership registry.

The budget’s proposed amendments also include allowing the CRA to:

  • seek a compliance order when a person has failed to comply with a requirement to provide foreign-based information or documents
  • ask that required information or documents be provided under oath or affirmation

All amendments will come into force once legislation to enact them receives royal assent.