The normal reassessment period, as defined in subsection 152(3.1) of the Income Tax Act (Canada), refers to the timeframe within which the Canada Revenue Agency (CRA) can audit and reassess a taxpayer’s return to adjust income, deductions, or tax payable.
After this period expires, the CRA can generally reassess only if it can show a misrepresentation attributable to neglect, carelessness or wilful default, or fraud (subparagraph 152(4)(a)(i)), or if the taxpayer signed a waiver (subparagraph 152(4)(a)(ii)). The Act also contains separate statutory provisions that extend the normal reassessment period in specific circumstances, such as transactions with non-arm’s-length non-residents, loss carrybacks, a missed T1135 combined with unreported foreign income, or an unreported disposition of real estate.
Under the Excise Tax Act (Canada), the relevant provision is subsection 298(1).
1. Normal Reassessment Period for Different Taxpayers
| Type of Taxpayer | Normal Reassessment Period |
| Individuals (T1 Returns) | 3 years from the date of the initial Notice of Assessment (NOA) |
| Canadian-Controlled Private Corporations (CCPCs) | 3 years from the date of the initial NOA |
| Other Corporations (e.g., public companies, foreign-controlled corps) | 4 years from the date of the initial NOA |
| GST/HST Returns | GST/HST Returns: 4 years from the later of the filing due date and the date the return was actually filed (ETA paragraph 298(1)(a)) |
For example, if an individual files their 2022 tax return and receives a Notice of Assessment on May 1, 2023, CRA has until May 1, 2026 (3 years) to reassess the return.
2. Exceptions to the Normal Reassessment Period
Under subparagraph 152(4)(a)(i) of the Income Tax Act (Canada) or subsection 298(4) of the Excise Tax Act (Canada), if the CRA can show that a taxpayer made a misrepresentation attributable to carelessness, neglect, or willful default, then there is no time limit—the CRA can reassess at any time.
Unfortunately for taxpayers, the Tax Court of Canada has interpreted this section broadly, and the threshold is lower than many taxpayers expect (an incorrect statement can qualify) but it is not automatic: the misrepresentation must be attributable to neglect, carelessness, wilful default or fraud, and a taxpayer who took a thoughtful, defensible filing position after reasonable care is not caught that allows the CRA to issue reassessments beyond the normal reassessment period.
3. Disputing a Reassessment Outside the Normal Reassessment Period
In order for the CRA to reassess a taxpayer pursuant to subparagraph 152(4)(a)(i), it must do the following:
- Establish that there was a misrepresentation; and,
- Prove that the misrepresentation resulted from the taxpayer’s carelessness or neglect.
The CRA bears the burden of proving both factors noted above. The Federal Court of Appeal has stated:
Although the Minister has the benefit of the assumptions of fact underlying the reassessment, he does not enjoy any similar advantage with regard to proving the facts justifying a reassessment beyond the statutory period… The Minister is undeniably required to adduce facts justifying these exceptional measures. [1]
A taxpayer can challenge a reassessment outside the normal reassessment period by arguing:
- No misrepresentation was made when the tax return was filed.
- The taxpayer had an honest but incorrect belief that their reporting position was correct.
- The taxpayer acted as a reasonable and prudent person would have in the same circumstances.
The taxpayer relied on a tax professional to ensure compliance with the Income Tax Act (Canada) or the Excise Tax Act (Canada).
References
[1] Lacroix, [2009] DTC 5625 at para 26
