On December 4, 2025, the Canada Revenue Agency issued a formal warning about financial arrangements involving critical illness insurance that, in the CRA’s view, are designed to avoid tax. The CRA stated that it actively investigates these arrangements and will reassess participants to deny the tax benefits they claimed – with monetary penalties, fines, and potential imprisonment on the table for promoters and participants alike.

If you are an incorporated professional or business owner who purchased a critical illness insurance policy through your corporation – particularly one involving a loan, an offshore insurer, or a promoter who pitched “tax-free” withdrawals – this warning applies directly to you. We expect a wave of audits, reassessments, and objections arising from these arrangements over the next several years. This article explains what the CRA is targeting, what the consequences look like, and what your options are – including a possible limited window to correct your affairs through the Voluntary Disclosures Program before an audit closes that door.

What Did the CRA Announce?

The CRA’s December 2025 tax alert targets a specific structure. According to the CRA, the arrangement typically works as follows:

1. A shareholder borrows money from a third-party lender connected to the promoter group, usually on a limited recourse basis – meaning that if the loan is not repaid, the lender can only look to specific collateral (typically the insurance policy itself) rather than the borrower’s other assets.
2. The shareholder transfers the borrowed funds to their corporation.
3. The corporation uses the money to purchase a critical illness insurance policy, often from an offshore insurer.
4. The corporation records the transfer from the shareholder as a loan payable, which allows the shareholder to withdraw corporate funds “tax-free” as purported loan repayments.
5. The security arrangements effectively cancel the shareholder’s obligation to repay the original loan, completing a circular flow of funds.

The net effect: retained earnings leave the corporation and land in the shareholder’s hands without being reported as a taxable dividend, salary, or shareholder benefit.

The CRA’s core position is that these arrangements only appear to be legitimate insurance transactions. In the CRA’s view, the products involved frequently fail to qualify as genuine insurance and exist only to support the tax outcome. This is not the CRA’s first warning in this area – in 2020, the agency published similar alerts about offshore disability insurance plan schemes and offshore leveraged insured annuity schemes, which used comparable limited-recourse loan structures.

Is All Corporate Critical Illness Insurance Planning Offside?

No – and this distinction matters enormously.

A corporation buying critical illness coverage on a key shareholder or employee, paying premiums from corporate funds, with no side loan structure and no offshore promoter, is generally ordinary risk management. If the insured person suffers a covered illness, the corporation receives a benefit that helps it absorb the financial shock of losing a key person. Nothing in the CRA’s warning suggests that this kind of planning is problematic.

Separately, domestic “shared ownership” or “split dollar” critical illness arrangements – where a corporation pays for the base coverage and the individual pays for a return-of-premium rider – are not the target of this alert, but they occupy a long-standing grey zone of their own. 

The alert is aimed at something different: structures whose defining features are a limited recourse loan, an offshore insurer, a promoter-connected lender, and a circular flow of funds whose real purpose is extracting corporate cash rather than buying insurance protection. If your arrangement has one or more of these features, you should speak with a tax lawyer promptly.

What Can the CRA Do If You Participated?

The CRA has a deep toolkit for attacking these arrangements, and the financial consequences compound quickly.

Reassessment to deny the tax benefits. The CRA can reassess to include the extracted funds in the shareholder’s income, for example, as a shareholder benefit under subsection 15(1) of the Income Tax Act (Canada), and to deny any deductions the corporation claimed. Where the CRA alleges that a misrepresentation was attributable to neglect, carelessness, wilful default, or fraud, it can reassess beyond the normal reassessment period, reaching back into years that would otherwise be statute-barred.

Gross negligence penalties. Under subsection 163(2) of the Income Tax Act (Canada), the CRA can impose a penalty equal to 50% of the understated tax, on top of the tax itself and arrears interest that compounds daily.

The general anti-avoidance rule (GAAR). For transactions occurring on or after January 1, 2024, the GAAR was significantly broadened – it now applies where obtaining a tax benefit was one of the main purposes of a transaction, includes an economic substance test, and carries a three-year extension of the reassessment period unless the transaction was disclosed to the CRA. For transactions occurring on or after June 20, 2024, a successful GAAR reassessment generally attracts a penalty of 25% of the additional tax (reduced by any gross negligence penalties).

Mandatory disclosure rules. Since June 2023, the reportable transaction rules in section 237.3 of the Income Tax Act require disclosure of avoidance transactions bearing even one of three hallmarks: contingent fees, confidential protection, or contractual protection. Promoter-driven arrangements with limited recourse financing frequently engage these hallmarks. Failing to report carries its own penalties and can leave the reassessment clock running indefinitely.

Third-party penalties and criminal exposure. Promoters and advisors face civil third-party penalties under section 163.2 of the Income Tax Act (Canada). In the most serious cases, tax evasion charges under section 239 carry fines of 50% to 200% of the tax evaded and up to two years’ imprisonment on summary conviction – and, if the Crown proceeds by indictment, fines of 100% to 200% of the tax evaded and imprisonment for up to five years. 

The Voluntary Disclosures Program: A Window That Is Closing

For many participants, the most important strategic question right now is whether to make a voluntary disclosure before the CRA comes calling.

The Voluntary Disclosures Program (VDP) was overhauled effective October 1, 2025, under Information Circular IC00-1R7, and the new rules are considerably more generous than the old regime:

• Unprompted applications: where the taxpayer who comes forward before any CRA communication about the specific compliance issue – are generally eligible for 100% penalty relief and 75% interest relief, plus protection from criminal referral on the disclosed matters.
• Prompted applications: made after the CRA has communicated about an identified compliance issue, or after the CRA has already received information from third-party sources about the taxpayer’s potential non-compliance – are still eligible, but relief drops to up to 100% penalty relief and only 25% interest relief.
• Once an audit or investigation has been initiated against the taxpayer (or a related taxpayer) on the issue, the VDP is no longer available.

Here is why timing is critical in the critical illness insurance context: when the CRA dismantles a promoted scheme, it typically obtains the promoter’s records – including client lists. Once the CRA has third-party information identifying you as a participant, your disclosure may be treated as “prompted” at best, cutting your interest relief from 75% to 25%. Once your audit begins, the VDP door closes entirely.

Already Being Audited or Reassessed?

If the CRA has already opened an audit into your critical illness insurance arrangement, the VDP is off the table for that issue – but you are far from out of options.

Do not respond to CRA audit queries about a promoted scheme without advice. Audit responses shape the entire dispute, and statements made casually at the audit stage can undermine defences later. Participants in promoted schemes often have genuine arguments on the merits, on penalties (particularly where they reasonably relied on professional advisors), and on the CRA’s ability to open statute-barred years.

If you receive a notice of reassessment, you generally have 90 days to file a notice of objection. If the objection is unsuccessful, the dispute can be appealed to the Tax Court of Canada. Engaging a tax litigation lawyer early – ideally at the audit stage – preserves the widest range of options.

One further point that matters in scheme cases: communications with a lawyer are protected by solicitor-client privilege. Communications with accountants and other advisors generally are not, and can be compelled by the CRA. When the subject matter is a promoted arrangement that the CRA has publicly labelled an aggressive tax scheme, privilege is not a technicality – it is a core part of protecting your position.

Frequently Asked Questions

I bought corporate-owned critical illness insurance from a major Canadian insurer with no loans involved. Should I be worried? Based on the CRA’s warning, the target is structures combining limited recourse loans, offshore insurers, and circular funds flows – not conventional corporate-owned coverage.

The promoter told me the structure was reviewed by tax professionals. Doesn’t that protect me? Not from reassessment. Promoter assurances do not bind the CRA. Reliance on advice may be relevant to resisting gross negligence penalties, but the tax and interest generally remain exigible if the CRA’s position is upheld.

How long does the CRA have to reassess me? The normal reassessment period is generally three years from the initial assessment for individuals and Canadian-controlled private corporations. However, where the CRA alleges misrepresentation attributable to neglect, carelessness, wilful default, or fraud, it can reassess at any time. GAAR reassessments for post-2023 transactions also benefit from a three-year extension where the transaction was not disclosed.

Can I still use the VDP if the CRA has written to me about the scheme? Possibly. Under the rules in effect since October 1, 2025, a CRA letter identifying a specific compliance issue generally makes your application “prompted” – still eligible, but with reduced interest relief. (A general education letter, by contrast, does not by itself prompt an application.) Once an audit or investigation has begun on the issue, the VDP is unavailable. This is a fact-specific determination and is worth assessing quickly with counsel.

Speak With a Toronto Tax Lawyer

Taxpayer Law Professional Corporation practises exclusively in tax disputes with the CRA – audits, objections, appeals to the Tax Court of Canada, voluntary disclosures, and taxpayer relief. If you participated in a critical illness insurance arrangement with any of the features described above, or if the CRA has already contacted you, we can assess your exposure and outline your options.

For most individual taxpayers, the chance of being selected for a full CRA audit in a given year is generally under 1% based on publicly reported CRA audit activity compared with the volume of returns filed. That said, “audit” is often used to describe several different CRA processes. Understanding the difference – plus knowing common audit triggers – helps you file more confidently and respond calmly if the CRA contacts you.

Why CRA audit odds are usually under 1%

Canada’s tax system is based on self-assessment, so the CRA uses electronic analysis, third party information, and risk-based selection to decide which files deserve closer attention.
In recent CRA planning and results documents, the overall audit volume is a small fraction of the number of individual returns filed – so the typical filer’s annual audit odds are usually well under 1%.
Keep in mind, though: the CRA may still select returns to verify specific claims, confirm information, or measure non compliance through random sampling.

Audit vs review: what most people actually experience

A CRA review is not the same as a full audit. Reviews are often targeted – meaning the CRA asks for receipts or documents to support specific items on your return. The CRA runs multiple review programs before or after assessment, and one of them specifically compares your return to third party information (for example, employers or financial institutions).

If you don’t respond to a review request, the CRA may adjust your return and deny the claim.

Common CRA audit triggers and review red flags

The CRA does not publish a single public “trigger list,” and selection is risk-based. Still, these patterns are commonly associated with reviews or audits:

• Slip mismatches or missing income: If what you reported doesn’t match third party information, the CRA’s Matching Program may flag it.
• Large, unusual, or first time claims: Reviews often focus on deductions and credits that require documentation. Tax experts commonly mention items like moving expenses, large interest deductions, or other unusually large claims as review magnets.
• Real estate reporting issues: The CRA publicly identifies multiple risk areas in real estate compliance, including property flipping, unreported gains, and improper principal-residence reporting.
• Inconsistencies and repeat adjustments: Prior errors, repeated changes, or inconsistent reporting year to year can increase scrutiny.
• Requests to change a return without support: The CRA’s Request Verification Program reviews change requests to ensure they’re allowable and properly supported.

When a tax lawyer can help

Many reviews are routine. However, a tax lawyer can be especially helpful when:
• You receive a broad audit notice (not just a narrow request for a specific receipt).
• The CRA proposes significant reassessments, penalties, or suggests misrepresentation.
• Your case involves complex business records, real estate transactions, or cross-border issues.
• You want strategic help filing a formal dispute (Notice of Objection) or communicating with the CRA.

If you’ve filed a Notice of Objection to challenge a CRA assessment (income tax or GST/HST), the question is usually simple: How long will CRA take? CRA now publishes monthly updates showing average time to assign an appeals officer and resolve an objection, based on complexity level (low, medium, high). 

This article explains current CRA timelines, how processing time has changed historically, and when it makes sense to speak with a tax lawyer if delays put your position, cash flow, or escalation rights at risk. 

Current CRA processing times by complexity

CRA updates average resolution times monthly. In the latest published update, objections resolved in January 2026 had the following average completion times (counted from the date the objection was submitted). 

Income tax objections (January 2026): 

• Low complexity: average 129 days;
• Medium complexity: average 364 days;
• High complexity: CRA states it may take over 690 days on average (high complexity is a small share of workload).

GST/HST objections (January 2026): 

• Low complexity: average 145 days;
• Medium complexity: average 268 days;
• High complexity: CRA states it may take over 500 days on average.

What “processing time” includes: CRA says the “days to resolve” include time the objection is within the control of the Government of Canada but exclude time waiting for the taxpayer to provide more information, if requested. 

CRA service standards vs. real-world results

CRA also reports annual “service standards” for objection timeliness:

• Low complexity: goal to resolve within 180 calendar days, target met 80% of the time. 
• Medium complexity: goal to resolve within 365 calendar days, target met 80% of the time. 

In 2024–2025, CRA reports it met these standards:

• Low complexity: 76% within 180 days. 
• Medium complexity: 71% within 365 days. 

This matters because a single “average days” number can hide variance. Service-standard performance helps you understand whether CRA is meeting targets consistently. 

How has CRA objection timeliness changed historically?

Older reporting shows that objection delays have long been a concern. A parliamentary committee report summarizing the Auditor General’s review notes that international benchmarking data (2009) showed Canada taking an average of 276 days to resolve objections versus 70 days on average across six peer countries. 

The same parliamentary report describes a long tail of extreme delay (particularly group files), noting tens of thousands of objections taking 5+ years, and thousands taking 10+ years to resolve in the Auditor General’s analysis. 

What you can do if your CRA objection is taking too long

Track status in CRA portals. CRA indicates objections can be tracked using the Progress Tracker in My Account/My Business Account (where available). 

Respond quickly to information requests. Because CRA’s “days to resolve” excludes the time you spend providing information, slow responses can materially extend your real-world wait. 

Know your escalation option if CRA doesn’t respond. The Tax Court of Canada states you may appeal if CRA does not respond to your Notice of Objection within 90 days for an income tax matter or 180 days for a GST matter. 

Why a tax lawyer matters for Notice of Objection delays

Objection delays aren’t only inconvenient – they affect strategy. A tax lawyer can help ensure your objection is complete, evidence is organized for review, deadlines are protected, and escalation is considered when CRA is not responding or when the stakes are high.

If your objection involves material tax, penalties/interest exposure, complex business issues, or you may need to escalate after the 90/180‑day non-response window, speak with a tax lawyer early. We can review your assessment, prepare a complete objection record, respond efficiently to CRA requests, and advise on the right escalation path – administrative resolution or Tax Court.

GST looks simple on paper: 5% federal tax on most goods and services. In real life, GST/HST issues are one of the fastest ways businesses end up with CRA reassessments, denied refunds, penalties, and interest.

This guide covers:

• what GST is (and when it’s actually HST, not GST)
• the $30,000 “small supplier” trap
• taxable vs zero‑rated vs exempt (and why this matters for ITCs)
• how to charge, claim, file, and remit correctly
• the CRA’s most common audit pressure points

1. What GST Really Is

GST is a consumption tax that applies to most property and services supplied in (or imported into) Canada. Businesses generally act as the CRA’s “middleman”: they collect GST/HST on sales and can usually recover GST/HST paid on business expenses through input tax credits (ITCs).

2. GST vs HST: Why Your Province Isn’t the Whole Story

Canada has:

• GST (5%) in non-participating provinces/territories, and
• HST (combined federal + provincial rates) in participating provinces.

3. The 3 Tax Statuses That Decide Almost Everything

Before you talk about “GST,” you need to classify the supply:

3.1 Taxable supplies

Most supplies are taxable at 5% GST or the applicable HST rate.

3.2 Zero-rated supplies

These are taxable at 0% (so you charge no GST/HST), but they still count as taxable supplies and typically still allow ITCs. Example: many basic groceries are zero-rated.

3.3 Exempt supplies

No GST/HST is charged, and ITCs are generally not available for costs related to exempt supplies.

This is where people get burned: “no tax to the customer” can mean zero‑rated (ITCs usually allowed) or exempt (ITCs usually denied). Getting this wrong can wipe out years of ITCs in an audit.

4. Do You Have to Register? The $30,000 Rule (With a Big Catch)

Most businesses register when they stop being a small supplier.

You generally must register if you make taxable supplies and you are not a small supplier.

There are generally two ways you can cross the $30,000 threshold:

1. You exceed $30,000 in a single calendar quarter
    You must charge GST/HST on the very supply that pushed you over $30,000, and your effective registration date is no later than that day.
2. You exceed $30,000 over the last four consecutive calendar quarters (but not in one quarter). You stop being a small supplier at the end of the month after the quarter you exceeded $30,000, and you must register and start charging from that point.

Special case – taxi and ride‑sharing drivers: If you supply taxable passenger transportation as a self‑employed taxi operator or commercial ride‑sharing driver, registration is mandatory even if you’re under $30,000.

5. What Happens If You Should Have Registered… But Didn’t?

This is the classic GST nightmare:

• You pass $30,000 and don’t register.
• You keep charging customers “normal prices” (no GST/HST line item).
• CRA audits and says: you should have been charging and remitting.

Result: the CRA can assess you for unremitted GST/HST, plus interest and penalties, and you may not be able to go back to customers to collect it.

6. Charging the Right Rate: The “Place of Supply” Problem

To charge the correct tax, you need two answers:

1. What type of supply is it? (taxable, zero‑rated, exempt)
2. Where is it made? (place of supply determines the GST vs HST rate)

7. ITCs: How Businesses Get GST/HST Back (And How CRA Denies Them)

If you’re registered, you can generally claim input tax credits (ITCs) for GST/HST paid or payable on purchases used in your commercial activities.

7.1 Documentation is non‑negotiable

CRA can deny ITCs if you can’t produce the required supporting info (for example, supplier name, date, amount, and – above certain thresholds – registration details).

7.2 Mixed-use businesses must apportion

If you have both commercial (taxable/zero‑rated) and non‑commercial/exempt activities, you may need to allocate GST/HST and claim only the portion related to commercial use.

7.3 New registrants: you may get ITCs on what you already own

When you register, you may be able to claim ITCs for certain inventory/capital property on hand at registration – but there are limits, and services used before registration are treated differently.

7.4 Record retention

You generally must keep GST/HST records for 6 years from the end of the year they relate to.

8. Filing and Paying GST/HST: Deadlines That Matter

Once registered, you must file a return every reporting period, even with no activity (a “nil return”).

8.1 Mandatory electronic filing

For reporting periods ending in 2024 and later, almost all registrants must file GST/HST returns electronically (charities and selected listed financial institutions are the main exceptions). Paper filing can trigger a penalty.

8.2 Filing & payment deadlines

• Monthly/quarterly filers: deadline is 1 month after the reporting period ends.
• Annual filers: deadlines depend on fiscal year-end and business income. For example, if your fiscal year-end is Dec 31 and you have business income, CRA lists Apr 30 (payment) and Jun 15 (filing).

8.3 Instalments (annual filers)

If you file annually and your prior-year net tax was $3,000 or more, you may need to make quarterly installment payments during the year.

9. The CRA Audit Traps That Cause the Most Damage

Here are the GST/HST issues that most commonly spiral:

• Missing the $30,000 threshold (especially the “single quarter” rule)
• Treating exempt supplies like zero-rated (or vice versa)
• Claiming ITCs without compliant invoices/records
• Charging the wrong rate because of place-of-supply confusion
• Filing late, skipping nil returns, or filing on paper when e-filing is mandatory

10. Two “GST Doesn’t Care” Situations: Directors and Trust Money

If you run a corporation, GST/HST can become personal.

CRA’s directors’ liability guidance explains that directors can be held personally liable for failures relating to GST/HST under section 323 of the Excise Tax Act, with a due diligence defence and other statutory requirements (including timing rules).

11. If You’ve Made Mistakes, Don’t Guess – Fix It Properly

If you suspect you should have registered, under-charged, over-claimed ITCs, or missed filings, the best approach is usually:

1. quantify the exposure (period-by-period),
2. get compliant going forward, and
3. consider whether a voluntary disclosure is available before CRA contacts you.

12. When a Tax Lawyer Helps Most

GST/HST problems are rarely just “paperwork.” Legal help matters most when:

• you’re facing a CRA audit or reassessment,
• GST is tied to real estate, platforms, or cross-border issues,
• penalties/interest are compounding, or
• director’s liability is on the table.

If you’re trying to solve a CRA balance problem – missing payments, credits in the wrong period, interest that won’t stop, or collection pressure – an online “balance screen” usually isn’t enough.

What you need is a detailed Statement of Account: the CRA’s transaction-by-transaction ledger showing what was posted, when it was posted, and where it was applied (by period). And yes—there’s a right way to request it so you actually receive something useful.

This guide covers:

• what “detailed” means
  
• how to request statements online vs. by written request
  
• what to do when older years don’t show up online

1. What counts as a “detailed” CRA Statement of Account?

CRA uses a few similar terms that people mix up:

A) Online “Account balance / transactions” view

Useful for quick checks, but it may not show every period you need – and CRA confirms this online info is not necessarily “official documentation.”

B) A detailed statement of account (issued on request)

CRA describes this as showing amounts posted and charged for a particular reporting and/or non‑reporting period, including things like (re)assessments and transfers, and providing balances by period.

2. When you should order a detailed statement (instead of guessing)

You may consider ordering a detailed statement of account if any of these are true:

• your bank shows payments, but CRA doesn’t (or they appear late
  
• credits are sitting in the wrong “Period End” (common in GST/HST and payroll)
  
• you suspect CRA applied a payment to the wrong account or period
  
• the online portal doesn’t display the older years you need
  
• you’re preparing a taxpayer relief request and need a clean ledger trail (interest/penalty chronology)

3. What to include in your request

Whether you submit an online enquiry or a written request, include:

1. Who you are
   

• legal name + contact details
  
• SIN (individual) or BN (business)
  

2. Which account(s): For businesses: specify program account(s) – these may include
   

• GST/HST (RT)
  
• Payroll (RP)
  
• Corporate tax (RC)
  

3. The exact time period: Example: “Jan 1, 2021 to Dec 31, 2024
   
4. What you want: Ask for a detailed Statement of Account showing:
   

• all assessments/reassessments
  
• all payments received
  
• all transfers in/out
  
• all interest and penalties posted
  
• balances by period

4. After you receive the detailed statement: what to do next

1. Match every payment to your bank transactions (date, amount).
   
2. Check allocation by period/accounts (this is where errors frequently hide).
   
3. Identify whether the problem is:
   

• missing posting,
  
• wrong period,
  
• wrong program account, or
  
• interest continuing because the “right” debt wasn’t reduced.
  

4. If a correction/transfer is required, request a correction from the CRA.

Bottom line

A detailed CRA Statement of Account is the document that lets you stop arguing about the balance and start proving what happened – by period and by transaction.

Contact us today to chat with our tax lawyers in Toronto.