June 25, 2018
What you need to know about the CRA Statute of Limitations, including how far back the CRA can go when assessing and collecting tax debt or auditing tax returns
What is the CRA Statute of Limitation on Tax Debt?
Paying off tax debt is difficult, but so is understanding various tax laws and Canada Revenue Agency (CRA) rules. In fact, fully understanding the ins and outs of CRA processes and rules is often more complicated than filing and paying taxes. One situation that many have trouble understanding is the CRA statute of limitations. This refers to how far back the CRA can go when looking into prior year returns, collecting tax debt, and conducting audits (this is sometimes known as the CRA audit time limit). A big fear that many have is the CRA conducting an investigation into returns from many years ago and then demanding you pay a significant tax debt that you weren’t even aware of owing.
This is why the CRA statue of limitations is so important. It gives you peace of mind and calms your concerns.
There are several reasons why people want to know more about the CRA audit time limit and reassessment time limit. For instance, there are some cases where a person knows that they owe a tax debt for several years, but they ignore it, hoping that the Canada Revenue Agency (CRA) won’t find it. In other cases, a person files their taxes and thinks everything is fine, only to be hit with a CRA reassessment many years later.
Either scenario brings up the same question: How far back can the CRA go when looking at income taxes and tax debt?
The reality is that the CRA has been given very strong powers and this is especially true when it comes to assessing and collecting tax debt. However, there are limits. These limits are referred to as the CRA Statute of Limitations.
One thing to remember, is that ignoring a tax situation and hoping the CRA doesn’t find out about it isn’t a smart strategy. The agency fully understands its own powers and any limitations that are placed upon these powers. This means that it knows what it can and cannot do. CRA officers understand their powers and are trained to utilize them effectively. If you have a tax dispute, you cannot count on the CRA to not notice it. Instead, it is clearly in your favour to work with professionals who understand tax law and CRA processes as well as CRA agents themselves. The team at Farber Tax Solutions is made up of legal and ex-CRA professionals who have extensive experience in dealing with the CRA. We will work to review your situation, plan the best strategy for resolving your tax problem, and then communicate and negotiate with the CRA on your behalf. Using this strategy, you actually resolve your tax dispute, instead of just waiting around and hoping the CRA doesn’t notice.
While understanding tax law and CRA processes (such as the CRA statute of limitations) is clearly important, it’s also important to build a strong case for yourself backed by facts and to work to resolve tax disputes before the CRA comes calling. The agency can be very difficult to deal with, and it has very strong powers that it can use to collect, so it helps to have experienced professionals on your side. Contact us today.
How Far Back Can CRA Reassess?
If you have filed your taxes and paid what you owe (or worked out a plan to pay over a period of time), one of the last things you want is for the CRA to come back and reassess your return. When the CRA reassess a tax return, it can determine that you owe more than you originally paid and/or what was originally stated when the CRA conducted its initial assessment.
When you first file your tax return, the CRA does an initial review. It then sends out a Notice of Assessment that contains a lot of information about your tax situation, including how much you owe. However, this may not be the last time the CRA will look at your tax returns. The CRA is able to go back and conduct a more in-depth review. If it finds anything that should be changed or that it believes is incorrect, the agency will issue a Notice of Reassessment. This replaces the initial Notice of Assessment.
However, there are limits to how far back the CRA can reassess a tax return (commonly known as the CRA statute of limitations). In general, the agency can go back and reassess a return for three years after the date on the initial Notice of Assessment. For example, if you file your 2015 tax return in April 2016 and receive your Notice of Assessment in June 2016, the agency can reassess this return until June 2019 (three years after the date on the assessment). However, there are exceptions to this rule.
If the CRA believes that fraud has taken place or that a taxpayer misrepresented themselves either willfully or due to carelessness, the agency can go back farther. In these situations, the CRA must prove that fraud or neglect took place. However, if it can prove this, then the agency can go back much farther than the three-year period noted above.
If you receive a Notice of Reassessment from the CRA, and you agree with the information listed, you can simply pay any taxes owing and move on. There is nothing more for you to do. However, if you disagree with the reassessment, you are able to formally object. This is done by completing a Notice of Objection. However, there is a deadline for objecting. If you wish to file a Notice of Objection, you have 90 days from the date on the Notice of Assessment or Reassessment to do so. When you file, you will need to provide supporting documentation to back up your claims that the reassessment is incorrect.
This is a major reason why the CRA states that taxpayers should keep all tax returns and supporting documents for six years from the end of the tax year for which they apply. Having supporting documentation (such as receipts, invoices, etc.) can help you prove your case if you need to object to a CRA assessment or reassessment. Therefore, if you file your 2015 tax return in April 2016, you should keep all relevant documentation until at least 2021 (which is six years from the end of the 2015 tax year).
What is a Collections Limitation Period?
In addition to there being a limit for how long the CRA can go back and reassess your returns, there is also a limit for how long the agency can collect a tax debt. This can potentially prevent situations where the agency comes after you for a debt you owed from decades ago that you probably didn’t know about. In general, each tax debt has a six- or ten-year collections limitation period.
In most cases, the collections limitation period is a ten-year period. This is true for individual taxes as well as most corporate income taxes. However, a six-year limitation period applies to payroll deductions.
However, much like with many CRA processes and rules, this isn’t as straightforward or cut and dry as it may seem at first.
It is a myth that if you don’t pay within six or ten years the CRA can no longer attempt to collect the tax debt. If this was the case, people could simply ignore and avoid the agency until the limitation period was reached and then avoid paying their debts. The reality is that the CRA collections limitation period can be extended or restarted whenever certain events occur.
If the CRA takes certain actions to collect the tax debt you owe (such as beginning the wage garnishment process or initiating the process of seizing and selling your assets to pay your tax debt) this will restart the collections limitation period. Certifying your debt with the Federal Court of Canada will also restart the time.
The end of the collections limitation period comes six or ten years from the date that it started (depending on the type of tax debt). If certain events took place and the limitation period was restarted or extended, the period will end six or ten years from the date of the last restart. Once this time is reached, the CRA is not legally able to take collections actions against you to collect the debt. This means it cannot contact you regarding the debt, it cannot begin garnishment processes or freeze your bank account, it cannot seize and sell your assets to pay your debt, and it cannot register your debt in court. This aspect of the CRA Statute of Limitations aims to prevent the CRA from going back and finding long dormant cases and taking collections action.
However, just because the collections limitations period has been reached, it doesn’t mean that the tax debt disappears. The tax debt continues to exist, and interest will continue to accrue until the debt is paid in full. You will be able to make voluntary payments after the limitation period ends. These payments will not restart or extend the limitation period.
If you owe a tax debt, there may be a CRA statute of limitations in place, but it’s generally not a wise idea to sit and wait for the collections limitation period to be reached. Instead, it is best to resolve the situation with the help of a professional. Find out how we can work to resolve your tax problem by contacting us today.
When does the Limitation Period Start?
When discussing the CRA statute of limitations as well as the collections limitation period, it’s important to understand all aspects. Much like many CRA processes, the details are important but they’re also quite complex. Not fully understanding CRA rules and processes can lead to a taxpayer making decisions based on inaccurate information, which isn’t a good position for anyone to be in. Therefore, it’s in the taxpayer’s best interest to understand as much as possible about CRA rules and processes. This includes the collections limitation period.
Depending on the type of tax debt, the collections limitation period starts on the date that the Notice of Assessment or Reassessment is sent, or 90 days after that date.
- With individual tax debt, such as personal income tax debt, the collections limitation period starts 91 days after a Notice of Assessment or Notice of Reassessment is sent. This means that there is a 90-day collection restriction after the assessment or reassessment is sent. The CRA can begin collection action on the 91st day and the collections limitation period is 10 years.
- For corporate tax debt, a 90-day collection restriction period also applies. On the 91st day, the agency can begin collection action. This means the collections limitation period starts on the 91st day after the NOA or reassessment is sent. A 10-year collections limitation period applies in these situations.
- For a large corporation (which is defined under the federal Income Tax Act), there is a 90-day collection restriction, however, the CRA can act to collect 50% of the amount owing as soon as the assessment or reassessment is sent. The agency can start collection action on the remaining 50% on the 91st day after the notice has been sent. The collections limitation period starts on the 91st day and the period is for 10 years.
- Payroll deductions are not subject to any collection restriction. As soon as a Notice of Assessment is sent, the CRA can begin collection action. Even if the Notice of Assessment is appealed or objected to, the agency can continue to collect the debt. The collections limitation period starts the day after the NOA or reassessment is sent and lasts for six years.
- Goods and Services Taxes (GST) and Harmonized Sales Taxes (HST) are also not subject to any collection restriction. The CRA can begin collection action as soon as the Notice of Assessment or Reassessment is sent. If an objection or appeal is filed for the assessment or reassessment, the agency can continue to collect the debt. The collections limitation period for these tax debts starts the day after the assessment or reassessment is sent and lasts for 10 years.
As you can see, there are different collection rules and limits depending on the type of tax debt. This means that the CRA Statute of Limitation will differ as well, since the date that the collection limit starts affects the time period in question. Speaking with a professional can help you understand the details of your particular case. Contact us today for more information.
Restarting the Collections Limitation Period
If you owe money to the CRA, it is obviously important to be aware of and to understand all CRA rules and procedures. The agency tends to make its policies very confusing and it’s often difficult for taxpayers to understand exactly what they’re dealing with. However, when you’re faced with situations such as the CRA statute of limitations (how long before the agency is no longer able to take action to collect on a tax debt), it’s important to know the facts.
The CRA statute of limitations for debt collection is officially known as the Collections Limitation Period. This is a period during which the CRA can take action to collect on a tax debt. Depending on the type of debt, there is a six- or ten-year collections limitation period.
However, it often isn’t quite as simple and straightforward as it may seem. One reason is because there are various examples of actions that can cause the collections limitation period to be extended or restarted.
For instance, actions you take can restart the collection period. These actions include:
- Making a payment
- Contacting the CRA to arrange a payment plan
- Filing a Notice of Objection
- Filing an appeal with the Tax Court of Canada
- Offering to provide security rather than paying what is owed
- Making a written request for a reassessment
- And various other actions
However, the limitation period is not just restarted by actions taken by a taxpayer. Again, if this was the case, people would be able to “wait out” the CRA and avoid paying their taxes. For this reason, various actions taken by the CRA can also restart the collections period, including:
- Certifying your debt in the Federal Court of Canada
- Initiating the process of seizing and selling your assets to pay your tax debt
- Issuing a Notice of Assessment or Reassessment against a third party for your tax debt
- Beginning the garnishment process to collect tax debt that you have not voluntarily paid
- Applying a refundable payment to your tax debt and notifying you via letter or statement
The CRA has very strong collection powers. If you owe tax debt and do not pay, the agency can seize your assets, freeze your bank account, garnish your wages, and take several other serious steps. Avoiding such collection action is critical. If the CRA decides that it wants to take serious action against you, it can be very tough to have these actions stopped or removed. Therefore, if there is a time limit on when these actions can no longer be taken, this is important to know.
If you are concerned about CRA legal action, if you owe tax debt and worry that the agency is going to come after you, or if you are wondering if the CRA is legally able to take steps to collect on a debt, it’s important to discuss your situation with a professional. Contact our team today for more information on how we can help. We’ll level the playing field and give you the information and support you need to be sure the CRA respects your rights.
Extension of the Collections Limitation Period
Much like the collections limitation period can be restarted, it can also be extended. This means that, under certain circumstances, the CRA can take collection action against a taxpayer to collect on a debt for a period longer than the six- or ten-year period that initially applied to a debt.
There are certain actions that will trigger an extension of the limit. In these situations, the clock stops running when the event happens and does not start again until it finishes. This means that the collections limitation period is effectively stalled.
Events that will lead to an extension of the collections limitation period include:
- Filing a bankruptcy or consumer proposal under the Bankruptcy and Insolvency Act, Farm Debt Mediation Act, or Companies’ Creditors Arrangement Act
- Situations where the CRA accepts security instead of payment for a tax debt
- Circumstances where a person becomes a non-resident of Canada after the Notice of Assessment or Notice of Reassessment has been sent
- Situations where the CRA postpones collection action without accepting security for an objected or appealed GST/HST debt. This situation is only applicable in cases where the GST/HST tax debt is assessed under the Excise Tax Act
- Circumstances where a Notice of Objection is filed. However, filing a formal objection will only extend the limitation period on tax debts that are subject to collection restriction.
- Situations where an appeal is filed with the Tax Court of Canada. Much like with the situation related to filing an objection, the limitation period will only be extended when an appeal is filed on a tax debt is subject to collection restriction.
Tax debts that are subject to collection restriction include individual tax debt, corporation tax debt, and large corporation tax debt. Payroll deductions and GST/HST debts are not subject to collection restriction.
As you can see, depending on the event, the collections limitation period could essentially be extended by several months and even potentially several years. This means the CRA could potentially continue to be in a position where it can take collection action against you for quite a long time.
CRA collection action is often very serious. This is because the agency has very strong powers. If you owe a tax debt and do not pay it, the CRA becomes very difficult to negotiate with. It will not take less than is owed to it because it knows that it can take very serious steps to collect on the debt. For instance, the CRA can garnish your wages and use this money to pay off your debt. It can also freeze your bank account and direct the bank to send the money in your account directly to the CRA. The agency can even seize your assets, sell them, and then use the money generated from the sale to pay down your debt. These actions are all potentially very severe and therefore it’s only natural that taxpayers will want to avoid them.
If you owe a tax debt and are concerned with the collections limitation period and CRA Statute of Limitations, our team can help. Contact us today to find out how we can resolve your tax situation.
What is the CRA Audit Time Limit?
No one wants to be audited. Even if you have done nothing wrong and don’t feel as though you’ll be hit with any charges or penalties by the CRA, an audit is still stressful, time-consuming, and intrusive. Audits cause anxiety, disruption, and much more. You could even potentially find yourself dealing with an unexpected tax debt or a penalty.
Since audits are so unwanted, many taxpayers want to know when the CRA audit time limit expires. No one wants to sit and worry that auditors could be coming around to ask questions about returns from many years ago.
The CRA audit time limit states that the agency has four years from the date on your Notice of Assessment to go back and conduct an audit. This means if you file your 2017 tax return in April 2018 and receive your assessment in June 2018, the CRA can audit this return until June 2022. However, much like with most CRA processes and rules, this is not a cut and dry situation. There are instances where the CRA audit time limit does not apply. For instance, if the agency believes that fraud has taken place, it can audit tax returns from much farther back. This is also true in cases where the agency believes you have been neglectful, careless, or willfully misrepresented your tax situation.
In these situations, the agency must be able to prove that it has a good reason for suspecting fraud or neglect. For instance, if the CRA audits, reviews, or reassesses your 2018 tax return in 2020 and finds that you did not properly disclose your income, it could assume that you made a similar error in previous returns. This may allow the agency to look back several years, and even audit returns that would have normally been outside the CRA audit time limit.
This is a major reason why the CRA requires taxpayers to keep all relevant tax documents for at least six years after the year they are applicable. If the agency decides to go back and audit a prior year return, it will want to look at receipts, invoices, and other relevant documents.
You do not want to go into a CRA audit without relevant documentation. The agency will likely assume that, if you do not have proof to back up the claims made in your tax return, you were not being truthful. Therefore, it’s a good idea to keep all relevant tax documents in a safe place.
If the CRA wishes to audit your tax returns, either within the standard CRA audit time limit or outside of it (due to suspicion of fraud or negligence), you should certainly have a professional on your side. Our team can work with you to prepare your case, collect and organize the relevant supporting documents, and accompany you to the audit. For more information, please contact us today. Our professional team is made up of legal and ex-CRA professionals who know how to effectively communicate and negotiate with the CRA.
CRA Limitations When Conducting and Audit or Reassessment
CRA audits and reassessments can be a big surprise. Once you file your taxes and receive your Notice of Assessment, it’s tempting to feel like the process is over and you can move on. However, this isn’t necessarily true. The CRA has the right to go back and review or reassess prior year tax returns. This means the agency can look back at your returns and potentially determine that you should have paid more tax. Not only will this mean that you’ll have to pay additional taxes, but you could even potentially be faced with penalties and interest charges as well. These costs can be significant and they’re certainly something that taxpayers will want to avoid if at all possible.
For this reason, many people find themselves wondering if there is a CRA statute of limitations in place and want to discover if there is a CRA audit time limit.
In most cases, the CRA has four years from the date of your tax assessment to audit your returns and three years to reassess your tax return. This means that if you receive the assessment for your 2016 tax return in June 2017, the CRA has until June 2020 to send a Notice of Reassessment and until June 2021 to review your return for an audit.
However, the situation can get more complicated. If the CRA believes that there is a suspicion of fraud, it can reassess as far back as records allow. This is also true if the CRA believes that you misrepresented your situation on your tax return, either due to carelessness or wilful action. However, the agency must be able to prove fraud, neglect, or wilful fault.
If the CRA reassesses a tax return, it can determine that you should have paid more tax than you did initially. If this happens, not only will you be responsible for paying the additional tax, but you will also be charged interest going back to the date when the taxes should have been due. If it has been a several years since your initial assessment, these interest charges could be significant. The CRA can also charge penalties if it believes you purposely neglected to provide accurate information on your return. In fact, the agency may even consider the situation to be tax evasion if it thinks a taxpayer did not properly declare their income or expenses in order to avoid paying taxes. This is obviously a very serious charge that can potentially be accompanied by a criminal record and even possible prison time.
If you are faced with a CRA reassessment, you have options. If you agree with the reassessment you can pay any amounts owing and move on. However, if you disagree, you can file a formal objection and even potentially take your case to court if necessary. The team at Farber Tax Solutions can help. Our professionals fully understand Canadian tax law and CRA processes and will work to make sure your case is heard and you are treated fairly. For more information, please contact us today.
CRA Limitations When Collecting a Tax Debt
The CRA has very strong collection powers. Not only does it use these powers to influence negotiations (if you know the CRA is about to take action against you, you’ll be more likely to accept any offer they’re willing to give you), but the agency also uses its powers to collect on debts. If you owe money to the CRA and have not paid it, the agency can freeze your bank account, garnish your wages, seize your assets, and more. These very serious actions have very serious consequences and, thus, it’s important to use considerable care when dealing with the CRA.
Since the agency is so powerful, you’ll want to make sure that you have professionals on your side to even the playing field. The team at Farber is made up of legal and ex-CRA professionals who fully understand tax law and CRA processes. We can help you prepare your case and negotiate and communicate with the CRA on your behalf. Our team can help put a stop to CRA collection actions and resolve tax disputes.
It’s important to note that, while the CRA is clearly a very powerful agency, there are certain parameters that the CRA must remain within when collecting tax debt, according to the CRA Statute of Limitations. The CRA cannot go after a debt indefinitely and it cannot bring up debts that are very, very old, except in very specific circumstances. If you are struggling with tax debt or worried that the CRA may come after you for old debts, it’s important to know the law.
For instance, subsection 221(3) of the Income Tax Act states that the CRA may not commence or continue to collect a tax debt after the end of the limitation period for the collection of the debt, which is 10 years in most cases and for most types of tax debt. This means that the CRA cannot take action to collect a tax debt if the debt is 10 years old or older.
However, there are various complexities in tax law and that means this situation often isn’t as straightforward as it sounds. The 10-year CRA statute of limitations is only applicable for cases where no action has been taken during the 10-year period. Each collection action by the CRA (or by the taxpayer) “resets the clock” or extends the time period.
For instance, if a tax debt is assessed for 2007, the CRA would have until 2017 to take collection action. However, if the agency made attempts to collect (such as sending a Requirement to Pay Letter) steadily up until 2017, then it still has an additional 10 years to take collection action from the date of the last action. Essentially, you need to go 10 years without any CRA collection action in order for the CRA Statute of Limitations to apply. Acknowledging the debt (such as filing an objection or an appeal) can also extend or restart the time limit.
If you are worried about prior year tax returns and concerned that the CRA is going to reassess your taxes or audit you, question you about your tax situation, commence collection action on outstanding debt, or if the CRA has already begun these processes, it’s important to contact the professionals today. We will help you understand your options and handle the CRA.