The 2018 Federal Budget proposed a new rule which would “stop the clock” on the usual reassessment deadline where a third-party requirement for information, or a compliance order against the specific taxpayer(s), is contested (proposed Section 231.8). The period from filing court papers to the final decision of the courts (including any appeals) will not count towards the usual time limit for CRA to reassess any taxpayer affected by the information disclosed.

As currently drafted, the extended reassessment period would operate in respect of all issues, not just those to which the requirement or compliance order relates.

reviewing the proposal when included in a Bill

If passed as drafted, taxpayers should be aware of any disputed third-party requests for information or compliance orders that may impact their reassessment period. It is possible that the taxpayer would not even be aware of the third-party requirement and be surprised by a reassessment outside the usual reassessment period. A similar result was experienced by a number of partners who were surprised by their reassessment due to the partnership’s dispute with CRA. The general partner acted on behalf of the other partners. See VTN 418(6).

This proposed change is particularly important as CRA has recently been using these third-party requests more often, and the third party frequently challenges the request – see PayPal (VTN 438(9)), Rona (VTN 432(11)), Square Canada (VTN 429(11)), and certain real estate developers (VTN 435(9)).

This proposal was not included in the first Budget Bill, Bill C-74.

See the May 2018 Canadian Tax Highlights article (Power To Lengthen Assessment Period, by Nick Pantaleo and Marisa Wyse) for further commentary on this issue.