One of the most common questions we receive about a CRA reassessment is “How far back can the CRA reassess me?” Many people worry about a CRA reassessment coming years and years after they’ve filed a return, leaving them struggling to remember financial details from years ago. The good news is that there are limits as to how far back the Canada Revenue Agency can go when it comes to reassessing someone’s return.
In order to understand the reassessment process, it helps to know a bit about how the CRA and the tax system in Canada work. The first thing you’ll need to know is the difference between an assessment and an audit.
What is a Tax Assessment?
An assessment is, as the CRA puts it, designed to “promote awareness of and compliance with the laws it administers.” The normal reassessment period for Canadian income taxes is three years from the date that your tax return was initially assessed. This means if you file your 2014 income taxes on April 30, 2015 (on time) the CRA will issue the initial Notice of Assessment on June 1, 2015 and the reassessment period will last until June 1, 2018.
Extending the Reassessment Period
However, there are situations where the CRA can extend the reassessment period. If the agency believes that the taxpayer misrepresented his or her tax return due to carelessness or wilful action, then the CRA can reassess a return at any time. The same is true if the CRA suspects fraud.
The agency must be able to prove fraud, neglect or wilful fault. These terms do not mean that you have made a simple mistake on your return. They refer to something more substantial. For example, the CRA can claim that material errors, such as misrepresenting income, are important enough that the limits of the reassessment period be waived.
The CRA can also reassess after the three-year limit has passed if it can produce a waiver that has been signed by you permitting these actions.
The CRA can audit your tax return within four years of the original notice of assessment. Much like with CRA reassessment, this period can be extended if the CRA suspects fraud. Audits are not the same as reviews or reassessments and are sometimes conducted if the CRA is not satisfied with the reassessment. These audits occur less often than reassessment, but they do happen.
It’s also important to note that these limits are different from how long you are expected to retain records and supporting documents. You are required to keep these documents for six years in case they are requested by the CRA. If you filed your return late, you must keep the documents for six years from the time of filing, not the date of the return.
If you have any questions about the reassessment process or if you are being reassessed or audited by the Canada Revenue Agency, please give us a call at 1-888-868-1400 to find out how we can help.