Statute-barred tax returns, are they really?

Canada Revenue Agency (“CRA”) can reassess tax returns for individuals, Canadian Controlled Private Corporations (“CCPC”) and trusts within three years from the date of the original Notice of Assessment. For non-CCPC’s and mutual fund trusts, this period is extended to four years. Beyond these periods, returns are referred to as statute-barred. (Subsection 152(3.1))

There are many exceptions to these rules, i.e. foreign reporting (Form T1135) extends the statute-barred period for an additional 3 years or when a request for the reassessment is made by the taxpayer.

Nevertheless, CRA can reassess a statute-barred tax return if it believes that the taxpayer made any misrepresentation that is attributable to neglect, carelessness or willful default, or if the taxpayer committed fraud in filing the return or in supplying any information.

The bar as to what constitutes a misrepresentation due to carelessness or neglect has been lowered considerably. Not reviewing tax returns, a significant discrepancy between the actual and reported income, reliance on promoters (or other parties who are not experts), not raising issues with one’s accountant, or relying on a dishonest or inexperienced accountant are all examples of possible careless actions.

These are just some of the situations in which the Courts have ruled that taxpayers did not exercise the required degree of diligence and reasonable care and did not behave as would be expected of a “wise and prudent person”. The taxpayers were reassessed many years after their returns became statute-barred.

In addition, a return will never be statute barred if it is not filed.

Finding that there was a lack of reasonable care in situations where taxpayers were considered not to have behaved as a “wise and prudent person”, has created more uncertainty with regard to when a tax return is considered statute-barred.

Dagmar Zanic, CPA, CA is a Senior Tax Manager and member of Manning Elliott’s tax team. She advises our individual and corporate clients on a wide range of income tax planning and tax compliance matters. To contact Dagmar, feel free to call her at 604-714-3640 or email her at dzanic@manningelliott.com

The above content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent changes. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.