Introduction

Navigating the complexities of tax reassessment is essential for corporations in Canada. The Canada Revenue Agency (CRA) has established specific time limits and rules for when they can reassess a corporation’s tax return, potentially affecting the assessment of tax, interest, and penalties. In this article, we’ll delve into the various reassessment timelines that corporations should be aware of to ensure compliance with CRA regulations.

Normal Reassessment Period

The CRA typically has the authority to reassess a corporation’s tax return within specific timeframes:

1. CCPCs (Canadian Controlled Private Corporations): For corporations that qualify as CCPCs at the end of the tax year, the CRA can reassess a return within three years of the date they sent the original notice of assessment for that tax year.
2. Non-CCPCs: For corporations that do not meet the CCPC criteria, the reassessment period extends to four years from the date of the original notice of assessment.

Extended Reassessment Period

The normal reassessment period can be extended for various reasons, including:

• Carrying Back Losses or Credits: If a corporation wishes to carry back a loss or credit from a later tax year, the CRA may extend the reassessment period.
• Non-Arm’s Length Transactions: Reassessments can be triggered when non-arm’s length transactions involving the corporation and non-residents impact the corporation’s tax.
• Foreign Income or Profits Tax: Reassessments may occur when the corporation pays or receives a refund of foreign income or profits tax.
• Impact on Other Taxpayers: If a reassessment of another taxpayer’s tax affects the corporation’s tax for the reasons mentioned above, the CRA may extend the period.
• Non-Resident Corporations: Reassessments can result from non-resident corporations’ allocation of revenue or expenses for Canadian business or notional transactions.
• Application of Specific Rules: Reassessments may occur to apply rules related to non-resident trusts or foreign investment, particularly for tax years starting after February 26, 2018.

Non-Resident Non-Arm’s Length Person (Extra Six Years)

If losses incurred in a specific tax year are reduced due to a reassessment beyond the normal reassessment period and involve non-arm’s length non-resident individuals, the reassessment period can be extended by six years.

Provincial Income Reallocation (Extra One Year)

Reassessments resulting from provincial income reallocation can extend the normal reassessment period by one year from the later of the day the CRA is informed of the provincial reassessment or 90 days after the notice of the provincial reassessment was mailed.

Substantive CCPCs – Tax Deferral Using Foreign Entities (Extra One Year)

Proposed changes suggest that the reassessment period for substantive CCPCs may be extended by one year beyond the normal reassessment period for assessments related to Part IV tax due to dividend refunds. This change is expected to apply to tax years ending after April 6, 2022, with some exceptions.

Unlimited Reassessment Period

The CRA can reassess a return at any time for specific reasons, including:

• Misrepresentation: If the corporation has made a misrepresentation due to neglect, carelessness, wilful default, or fraud in filing the return or supplying required information under the Income Tax Act.
• Waiver: If the corporation filed Form T2029, Waiver in Respect of the Normal Reassessment Period or Extended Reassessment Period, with a tax services office before the normal reassessment period expires.
• Carrying Back Losses or Tax Credits: If a prescribed form requesting the amendment has been filed on time for carrying back losses or certain tax credits and deductions.
• Court Instruction: When a court instructs the CRA to reassess.

Sale or Disposition of Real Estate

The CRA may reassess an income tax return at any time beyond the normal reassessment period for various reasons, including:

• Failure to report the sale or disposition of real or immovable property that is capital property.
• Non-filing of an income tax return, with the CRA issuing an assessment of tax after a review.
• Ownership of capital property through a partnership without reporting the sale or disposition in the partnership information return.

Reassessments during the extended period are limited to amounts reasonably related to the unreported or previously unreported disposition of capital property.

Conclusion

Understanding CRA reassessment timelines is crucial for corporations to ensure compliance and avoid potential penalties. It’s essential to be aware of the specific rules and conditions that may extend or limit the reassessment period. For further information on CRA reassessment guidelines or to navigate the complexities of corporate taxation, consult with a qualified tax professional.

References:

• Subsections 152(3.1), 152(4), and 152(4.1)
• IC75-7, Reassessment of a Return of Income