The CRA Statute of Limitations: When Can You Stop Fearing a Tax Reassessment?
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
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How Far Back Can The CRA Go?
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.
CRA Limitations When Conducting and Audit or Reassessment
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 2021 to review your return for an audit.
However, if the CRA believes that there is a suspicion of fraud, it can audit 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.
CRA Limitations When Collecting a Tax Debt
There are certain parameters that the CRA must remain in when collecting tax debt, according to the CRA Statute of Limitations.
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. This means that the CRA cannot take action to collect a tax debt if the debt is 10 years old or older.
However, this is only true for cases where no action has been taken during the 10-year period. Each collection action by the CRA “resets the clock” another ten years. For instance, 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 a Requirement to Pay Letter) steadily up until 2017, then it still has an additional 10 years to take collection action. Essentially, you need to go 10 years without any CRA collection action in order for the CRA Statute of Limitations to apply.
What You Can Do
If you are worried about prior year tax returns and concerned that the CRA is going to reassess your taxes or audit you, contact 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.
Farber Tax Solutions Helps You at Every Step of the Way including:
- 1| Organizing: We analyze all documents and communication, to fight the CRA on your behalf
- 2| Audits: We assist you with audits and ensure proper conduct by tax authorities
- 3| Appeals: We can prepare a Notice of Objection, clarifying your standing with the CRA
- 4| Litigation: We represent you at all levels of court