FILING, ASSESSMENTS, INTEREST, PENALTIES, OBJECTIONS, COLLECTION, RELIEF, ETC.

Circumstances requiring a person to file a tax return

Due date for filing a return and payment of tax

Late filing of a return - going back 10 years

Penalties for late filing of a return

Interest on overdue amounts

Assessments

Reassessments within first 3 years

Reassessment by CRA after 3 years

Reassessments requested by taxpayer after 3 years

Retroactive tax planning

CRA’s right to assess tax unilaterally if no tax return is filed by taxpayer

Duty to keep records

CRA requests for information, documents; and audits

Penalties for failing to report income or false statements

Objections and appeals

Requests to cancel penalties and interest

Requests to defer payment or enter into a payment plan

Collection of tax debt

Voluntary Disclosure Program

References

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Circumstances requiring a person to file a tax return?

A tax return must be filed if:^[1]

(i)        tax is payable;

(ii)        the person is resident in Canada at any time of the year, and the person had a taxable capital gain;

(iii)        the person is resident in Canada at any time of the year, and the person disposed of a capital property;

(iv)        the person is required to make a CPP contribution on self-employed earnings.

In addition, the CRA can make a demand that a person file a tax return, even if the above does not apply.^[2]

Since CPP contributions on self-employed income are paid through tax returns, if a person’s self-employment income is above the threshold for CPP contributions, a tax return must be filed. The current threshold is $3,500 net income.

Due date for filing a return and payment of tax:

A tax return is required to be filed in a prescribed form by April 30th^[3]. Electronic filing is permitted, and there is a deemed filing when the CRA acknowledges acceptance of it.^[4]

Any tax owing (less amounts withheld and installments paid) is due on the “balance-due day”.^[5] The balance-due day is the day on which a tax return is due, which is April 30th.^[6] 

Late filing of a return - going back 10 years:

If a tax return is filed within 3 years from the end of a tax year, the CRA can issue a refund after sending a notice of assessment.^[7] The CRA will issue a refund on behalf of a province if the CRA and the province have such an agreement.^[8] This applies to Ontario.

If filed after 3 years the CRA may issue a refund provided the return was filed within 10 calendar years after the end of the year.^[9] For example, a tax return for 2015 can be filed within 10 years after the end of 2015, i.e. by the end of 2025.

Note there is no time limit for filing a tax return. A return can be filed for a tax year that is more than 10 years ago. The 10-year limitation has to do with refunds and refundable credits. In some cases it could make sense to file a return for an older tax year. For example to claim tuition credits that may carry forward to a year within the last ten years.

A refund is the return of an “overpayment”. An overpayment is the total of all amounts paid on account of the taxpayer’s liability under “this Part” for the year minus all amounts payable in respect thereof.^[10] Amounts ‘paid on account’ includes tax withheld at source, and any payments made prior to assessment. “This Part” includes most of the Income Tax Act provisions relating to the calculation of an individual’s tax return, including the most common deductions and credits, and including the child benefit, the GST/HST credit, the Canada workers benefit, and the Canada training credit.

Sometimes an adjustment request involves the making or changing of an election. An election is generally a formal choice under the ITA requiring the filing of a specific form. The CRA has the discretion to extend the time for making an election, or grant permission to change an election, if the request is made within 10 years.^[11] But a penalty could be applied for the lateness.^[12]

CPP contributions on self-employed earnings are not required to be paid if the tax return on which the earnings ought to have been reported was not filed before the day that is four years after the day on which the tax return was required to be filed.^[13]

Penalties for late filing of a return:

If a return is filed late, the penalty is 5% of the tax due, plus an additional 1% for each full month that the return is filed after the due date to a maximum of 12 months (the maximum penalty  is 5% + 12% = 17%).^[14] 

If a taxpayer’s fails to file a return when required, and if a demand for the tax return has been sent by the CRA , and if a penalty was applied for any of the prior three tax years, then the penalty for late filing is instead 10% of the tax due, plus an additional 2% for each full month that the return is filed after the due date, to a maximum of 20 months (the maximum penalty is 10% + 40% = 50%).^[15]

The CRA has the discretion to cancel or waive penalties.^[16]

Interest on overdue amounts:

A taxpayer is required to pay interest on overdue amounts at the prescribed rate.^[17] The interest also applies to overdue penalty payments.^[18]

A quarterly rate is prescribed that is related to the average yield of  Government of Canada three-month Treasury Bills, plus 4%.^[19] 

Interest is compounded daily.^[20] The CRA maintains a webpage reporting current and historical interest rates. The rate in effect from Jan 1, 2025 to Mar 31, 2025 is 8% per annum (about 0.02% per day).

The CRA has the discretion to cancel or waive interest.^[21]

Assessments:

The CRA is required to assess a taxpayer’s filed return “with all due dispatch” and determine the refund or tax owing.^[22] The CRA is required to send a notice of assessment.^[23]

If a person agrees to receive email notifications, a notice of assessment is presumed to have been sent to an individual on the day it is made available to the taxpayer (through the My CRA portal).^[24] 

Reassessments within first 3 years:

The Income Tax Act defines a normal reassessment period to be 3 years from the time the CRA sends an original notice of assessment.^[25]

Within that 3 year period, the CRA can unilaterally reassess taxes or reassess them in response to a taxpayer’s request for an adjustment.^[26] A taxpayer can request an adjustment using Change my return on a person’s My CRA portal, or by mailing a T1-Adj form.

Reassessments by CRA after 3 years:

The CRA cannot unilaterally reassess a notice of assessment more than 3 years after the normal reassessment period, i.e. after 3 years has passed since the CRA issued a notice of assessment, unless the taxpayer, when they filed their return, made a misrepresentation attributable to neglect, carelessness or wilful default or has committed fraud.^[27] 

The purpose of this 3-year limitation period is to provide a limited window during which the CRA may review and reassess taxes such that a taxpayer who has not engaged in misrepresentation or fraud can have some certainty in their tax affairs.

The CRA has the burden to prove misrepresentation or fraud. The burden can be discharged if the CRA can show that a taxpayer’s wealth does not accord with their reported income, and the taxpayer is unable to provide a credible explanation for the discrepancy.

If a reassessment is done by the CRA after 3 years by reason of misrepresentation or fraud, the reassessment can only relate to the misrepresentation or fraud. The entire original assessment is not reopened for reassessment.^[28]

Reassessments requested by taxpayer after 3 years:

If a taxpayer applies for a reassessment after the 3 year period, the CRA may reassess tax, interest and penalties for that purpose, and issue a refund.^[29] But the taxpayer’s application must be made within 10 calendar years after the end of the taxation year.^[30] Here is the wording of the section:

“..for the purpose of determining… at any time after the end of the normal reassessment period… the amount of any refund to which the taxpayer is entitled… or a reduction of an amount payable… the Minister may, if the taxpayer makes an application for that determination or before the day that is 10 calendar years after the end of that taxation year, reassess tax, interest or penalties payable… by the taxpayer.”

The CRA interprets this wording to mean that it can only make an adjustment if it increases a refund or decreases tax.  If the taxpayer’s application would result in a decreased refund or increased tax, such that the taxpayer would owe the CRA money, then the CRA will not process the adjustment request.^[31] 

If an application for an adjustment is made after 3 years, the CRA has the discretion to do a reassessment or not.^[32] If the CRA does reassess tax in response to an application, there is no right to object to the assessment, and hence no right to appeal the reassessment.^[33]

Retroactive tax planning:

A request for an adjustment that amounts to ‘retroactive tax planning’ may be denied by the CRA. However it is not always clear whether certain requests would be characterized by the CRA as retroactive tax planning.

CRA’s right to assess tax unilaterally if no tax return is filed by taxpayer:

The CRA can assess tax if no tax return has been filed.^[34] It is sometimes called an “arbitrary” or “notional” assessment. There is no limitation period to prevent the CRA going back as far as they wish. The taxpayer is required by law to pay the taxes owing on the assessment but has the right to submit a return to amend the assessment. The CRA will accept an amending return electronically as long as it doesn’t contain more than 80 line changes; otherwise, a paper return is required.^[35]

Duty to keep records:

Taxpayers are required to keep records and books of account at their residence in Canada in such form and containing such information as will enable the taxes payable to be determined.^[36]

Records and books must be kept until the expiration of six years from the end of the last taxation year to which the records and books relate.^[37] For some particular records and books a different time period is prescribed.

If a person required to file a return fails to file the return, records and books must be kept until the expiration of 6 years from the day the return is filed.^[38]

CRA requests for information, documents; and audits:

To administer and enforce the Income Tax Act, the CRA can:^[39]

• require a taxpayer to provide assistance and answer questions;
• inspect books and records of the taxpayer or others;
• examine property;
• enter premises where business is carried out or property is kept, but it cannot enter an individual’s home without a search warrant issued by a judge (which could be obtained on a motion without notice).  

A request for information or documents can be made under a CRA review program.^[40]  An example would be a request for a rent receipt, or medical receipts.

Alternatively, the CRA can conduct an audit, and if necessary issue a formal notice to provide information or documents.^[41] Note that the word “audit” is not specifically used in the Income Tax Act.

Penalties for failing to report income or false statements:

A person is liable to pay a penalty if they fail to report an amount of income of $500 or more and failed to do so in any of the three preceding tax years.^[42] The penalty can be no more than 10% of the amount that the person failed to report.

A person is liable to pay a penalty if they knowingly, or under circumstances amounting to gross negligence, make a false statement or omission on their return.^[43] This is sometimes referred to as the “gross negligence penalty”. The penalty is the greater of $100 and 50% of the understated tax or the overstated credits (or both) related to the false statement or omission.

A person who fails to provide information on a prescribed form is subject to a penalty of $100 for each failure.^[44]

The CRA can waive or cancel penalties.^[45]

Objections and Appeals:

What if a person disagrees with a CRA notice of assessment or reassessment, or a notice of determination or redetermination?

The best first step may be to call the CRA and discuss the situation. If that does not resolve the matter, the person may be able to file a notice of objection with the CRA Appeals Intake Centre.

If a person disagrees with the CRA’s assessment, they can file a notice of objection in writing setting out the reasons for the objection and all relevant facts.^[46]

A notice of objection must be filed on or before the later of (i) one-year after the taxpayer’s filing due date and (ii) 90 days after the CRA’s notice of assessment is sent.  For example, if a tax return is filed in March 2025 for the 2024 tax year, and the notice of assessment is received within 2 weeks, the taxpayer will have until April 30, 2026 to file a notice of objection.  

If an objection is not filed in time, the person can apply for an extension but the application must be made within two years of the tax filing deadline. If the CRA does not grant an extension the person can submit a further application for extension to the Tax Court of Canada.

Failure to file a notice of objection within the required time or within an extension period (if granted) will result in no ability to challenge the tax assessment.

A CRA website sets out the procedure for filing an objection. Upon receiving a notice of objection, the CRA is required to reconsider the assessment with all due dispatch, and then vacate, confirm or vary the assessment or reassess, and advise the taxpayer.^[47]  An appeals officer will review the objection, try to resolve the dispute, and issue either a reassessment or confirmation of the original assessment.

If the person disagrees with the appeals officer’s decision, they can issue a court claim against the CRA and have the dispute decided by the Tax Court of Canada. Further appeals may be made to the Federal Court of Appeal and the Supreme Court of Canada.^[48]

Requests to cancel penalties and interest:

The CRA has the discretion to cancel or waive penalties or interest, but only for the last 10 tax years.^[49] The Income Tax Act and regulations do not set out the factors to be applied by the CRA; these are decided by the CRA, and are found in CRA publications, forms, and web pages. A cancellation can be done unilaterally by the CRA, or upon request.

A request can be made online through MyAccount, or by submitting Form RC4288 - Request for Taxpayer Relief - Cancel or Waive Penalties and Interest. In most cases the CRA will expect to receive supporting documentation.

In general, the CRA will consider cancelling penalties or interest if the cause for the default or failure to pay were (or are) events beyond the person’s control. Examples include:

• Financial hardship, difficulty affording basic necessities
• Death or illness of taxpayer or significant person in taxpayer’s life
• Emotional or mental distress, depression
• Postal strike
• CRA error or delay

The CRA provides guidance on their website and in Information Circular IC07-1R1. The CRA aims to issue a relief decision within about 6 months, but they often take longer. Denials are subject to administrative and judicial review.

In addition to the above factors, the CRA also considers the taxpayer’s conduct, including whether they have a history of voluntary compliance with tax obligations, whether they knowingly allowed a balance to exist, whether they exercised a reasonable amount of care with respect to their tax affairs, and whether they acted quickly to remedy delays or omissions on their part.

There are many judicial review court cases involving a taxpayer challenging the CRAs denial of relief.^[50]

Requests to defer payment or enter into a payment plan:

If a person is unable to pay a tax debt, they can contact the CRA to ask for more time to pay (with penalties and interest suspended during the period of extension), or they can ask to enter into a payment arrangement to pay the debt over time, for example paying a small amount each month until the debt is retired.  

The CRA will consider the person’s ability to pay, and whether the person has tried all reasonable ways of getting the necessary funds, either by borrowing or rearranging their financial affairs. The CRA may request supporting documentation as proof of income, expenses, assets, and liabilities. A collections officer may seek to verify the information before the CRA agrees to a payment arrangement.

To make a request for a payment plan, a person should call the CRA at 1-888-863-8657. Before calling they should be well prepared to fully explain the reason for the request, and to discuss their financial circumstances.

Collection of tax debt:

The CRA has two main ways to collect a tax debt:

1. Offsetting amounts owed to the taxpayer – The CRA can apply future tax refunds, benefits, or refundable credits toward the debt. The CRA may, instead of issuing a refund, where the taxpayer is, or is about to become, liable to make any payment to the Canadian or Provincial government, apply the amount of the refund to that other liability and notify the taxpayer of that action.^[51] However the Canada Child Benefit is protected and not applied to debt.
2. Enforcement actions:

• Section 224(1) of the ITA allows the CRA to issue a Requirement to Pay directly to a third party who holds property owing to the taxpayer. This is commonly used to garnish wages or seize bank accounts. The CRA does not need a court order to issue an RTP.
• Section 226(1) allows the CRA to seize and sell taxpayer property to satisfy unpaid taxes. This includes real and personal property. The CRA must follow notice and procedural requirements, but no court order is required.
• Section 221 allows the CRA to certify amounts owing and create a lien against real property. Registration of the certificate gives the CRA priority over other creditors. Again, no court order is required.

Court involvement is only needed if there is a dispute the CRA can’t resolve administratively or if a taxpayer contests a seizure in Federal Court.

Debt information can be found in a My CRA account (accessible through represent-a-client with client’s permission), including in a Statement of Account.

Voluntary Disclosure Program:

If an individual failed to report income or made some other error on a tax return they’ve filed, they can disclose the error to the CRA under the Voluntary Disclosure Program (VDP). This may enable the individual to avoid penalties, partial interest, and prosecution, but not the tax itself.

References:

• Income Tax Act, s.150 (Returns), s.152 (Assessment), s.161 (Interest), s.162 (Penalties),  s.164 (Refunds), s.165 (Objections to Assessments), s.220 (Collection) s.230 (General), s.231.1 (Information gathering)
• CRA web page on audits
• CRA web page on Objections, appeals, disputes, and relief measures
• CRA web page - Requesting adjustment after 3-year period
• CRA web page - Debt Collection
• Information Circular IC07-1R1 Taxpayer Relief Provisions
• CRA web page on Voluntary Disclosure Program
• CRA web page - interest rates
• CRA web page on interest and penalties