Taxpayer Representatives Beware: The CRA Are About to Get Much Stronger Audit Powers!
Back in 2022, the Canadian Government gave the Canada Revenue Agency (“CRA”) basic interview powers. This meant that the legislation, specifically subsection 231.1(1) of the Income Tax Act, and the corresponding legislation for other types of tax, gave the CRA the power to compel taxpayers to attend oral interviews or to answer questions in writing, in any form. Fast forward to 2024, the Canadian Government issued the 2024 Budget which proposed to enhance the CRA’s audit powers, enabling the CRA to questions taxpayers orally in interview under oath or affirmation, or to compel taxpayers to answers questions in affidavit format. That said, those powers did not become law, yet.
The Canadian Government released its proposed changes (“Proposed Changes”) for the upcoming 2025 Budget on August 15, 2025. The 2025 Budget is set to be released by Mr. Carney’s government on November 4, 2025. In the Proposed Changes, the Canadian Government did not “walk back” its significant enhancement of CRA audit powers much.
Instead, the Proposed Changes suggest that the 2025 Budget will attempt to introduce the various enhanced CRA audit powers including:
- The ability for the CRA to compel taxpayers to provide information orally in interviews under oath or affirmation, or to respond to interview questions in writing via affidavit format.
- The ability for the CRA to issue Notice(s) of Non-Compliance, which allows the CRA to issue notices to taxpayers who “fail to comply with information requests”. If taxpayers do not comply, the CRA could issue penalties of $50 per day that the notice is outstanding up to a maximum of $25,000. There would also be related extensions to the normal reassessment period during this time so that taxpayers cannot “run out” the clock.
- The ability for the CRA to obtain Compliance Orders that lead to direct penalties instead of just contempt of court. The CRA can currently obtain compliance orders from the court that directs a non-compliant taxpayer to comply with the CRA’s information request. However, the penalty being “contempt of court” has not been overly helpful for the CRA to convince non-compliant taxpayers to comply. The Proposed Changes includes the penalty portion of this policy to become a penalty of up to 10% of the aggregate tax payable by a taxpayer when the CRA obtains a compliance order against the taxpayer if the tax owing is more than $50,000. Theoretically, there would be no cap on how high this penalty could go.
There are avenues to dispute the above enhanced audit powers and appeal them to different forums. However, these changes indicate a marked departure from current CRA audit norms.
These are some of the significant Proposed Changes to the tax legislation that will directly impact taxpayers. There are several other Proposed Changes that taxpayers and representatives should familiarize themselves with. You can find all the Proposed Changes here:
While the above changes are not guaranteed, we will know more once the 2025 Budget is released on November 4, 2025. Even then, the proposed changes would need to receive Royal Assent to become law.
If you would like to discuss the risks and analyses of the various changes, please do not hesitate to reach out to me at:
Kendal Steele
416-748-4138