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Published: September 27, 2021

Last Updated: October 25, 2021

Introduction – Filing Deadline and Normal Tax Reassessment Period

Under subsection 152(4) of the Income Tax Act, the normal tax reassessment period rule prevents the CRA from reassessing a Canadian taxpayer for a tax year that is beyond the normal reassessment period unless the CRA can demonstrate negligence, carelessness or willful default committed by the taxpayer. The normal tax reassessment period is four years for a mutual fund and any corporation that isn’t a Canadian controlled private corporation, and three years for everyone else.

This rule often favours Canadian taxpayers. When the CRA raises a tax reassessment beyond the normal reassessment period, the CRA must first raise sufficient evidence to demonstrate that the taxpayer being assessed was negligent, careless or willfully fraudulent. If the CRA fails on that front, no reassessment against the taxpayer can be made.

However, there are scenarios where the normal tax reassessment period works against Canadian taxpayers. When a taxpayer has not filed his or her taxes, and this failure to file was discovered by the CRA, then the CRA can issue arbitrary tax assessments. These arbitrary tax assessments are an estimate of what the CRA computes the taxpayer should have reported on his or her unfiled tax returns. The Taxpayer may dispute the arbitrary assessment by filing his or her returns and requesting the CRA to reassess on the basis of these filed returns.

However, when the Taxpayer fails to address these arbitrary assessments within the normal reassessment period, the CRA can refuse to accept any returns filed by the taxpayer even when these returns represent the accurate amount of owing by the taxpayer. This is of course a problem when the filed tax returns show income less then the arbitrary tax assessments.

In 1594418 Ontario Inc. v MNR, the Federal Court of Appeal affirmed CRA’s power to refuse to reassess the taxpayer beyond the normal reassessment period.


1594418 Ontario Inc – The Facts

The facts of the 1594418 Ontario Inc case are fairly simple. The taxpayer corporation 1594418 Ontario Inc did not file any tax returns between 2009 to 2016. The CRA issued arbitrary tax assessments for 1594418 Ontario Inc’s 2009 to 2012 tax years in June 2013.

In December 2015, after the CRA assigned a tax compliance officer to request 1594418 Ontario Inc to file its 2013 to 2016 taxes, an accountant representing the corporation responded to the CRA’s request to file the unfiled taxes. This accountant interpreted her correspondence with the CRA as the CRA was willing to accept and reassess all of 1594418 Ontario Inc’s tax returns from 2009 to 2016. However, that was not the case and in a letter dated October 2016 the CRA refused to accept 1594418 Ontario Inc’s tax returns from 2009 to 2012.


1594418 Ontario Inc – The Ruling

1594418 Ontario Inc appealed to the Federal Court of Canada in April 2019. The Federal Court decided this appeal in favour of the CRA on the ground that 1594418 Ontario Inc filed its Notice of Appeals application past the statutory deadline as set out in the Income Tax Act. Under the Income Tax Act, a taxpayer who wishes to dispute an assessment or a reassessment from the CRA has 90 days to file either a Notice of Objection or an extension of time application following the assessment or reassessment, and the taxpayer may apply for an appeal to the Tax Court of Canada following the conclusion of the Notice of Objection within 90 days or file an extension of time application within 90 days.

Since 1594418 Ontario Inc’s original request to have the CRA accept its 2009 to 2012 returns were rejected in October 2016, the statutory deadline for requesting judicial review had long elapsed when this application was filed in April 2019. In order for this judicial review application to be considered on time, 1594418 Ontario Inc would have to find new facts to make a second request in 2019. The Federal Court considered this judicial review request to be essentially based on the same fact as 2016.


Pro Tax Tips and Analysis

While 1594418 Ontario Inc may have a case based on the CRA agent having verbally promised them to reassess the 2009 to 2012 tax years, this argument did not have a chance to work because 1594418 Ontario Inc did not file an application for judicial review on time after it received the October 2016 letter. It is crucial for Canadian taxpayers to be mindful of all the relevant statutory deadlines when engaging in tax disputes with the CRA. The best way to do that is to retain experienced Canadian tax litigation lawyers who have expertise in dealing with all aspects of the tax dispute and litigation process. While this case was decided on procedural grounds, the Federal Court did make an obiter statement on CRA’s discretion to assess beyond the normal tax reassessment period for 1594418 Ontario Inc. The Court’s obiter statement was heavily affected by the inability of 1594418 Ontario Inc to raise any evidence beyond hearsay. The only evidence before the Court was the CRA officer’s affidavit, while 1594418 Ontario Inc did not put their accountant on the witness stand or produce an affidavit from their accountant to support their position that there was indeed a verbal promise or understanding between 1594418 Ontario Inc’s accountant and the CRA that the CRA would exercise its discretion to reassess beyond the normal reassessment period. Therefore, it is important to engage with expert Canadian tax litigation lawyers early in the process and to keep complete records of all phone and in person conversations with the CRA, as these may become essential in the event of tax litigation against the CRA. If you have not been filing your taxes in the past, but have yet to receive an arbitrary assessment from the CRA, you may be eligible to take advantage of CRA’s voluntary disclosure program. The general eligibility criteria for CRA’s voluntary disclosure program (VDP) are the following: Voluntary: the CRA must have no prior knowledge about the taxpayer’s tax owing. Complete: the taxpayer must disclose tax information on all tax years in which his or her filings were inaccurate. Tax Owing: the taxpayer must owe tax to the CRA due to inaccurate filings. One Year Past Due: the taxpayer can only disclose information for tax years that is at least one year past the filing due date. Estimated Payments attached: the taxpayer must pay the estimated amount owing when the application was filed. Speak to one of our experienced Canadian tax lawyers for advice on your best option going forward if you have fallen behind on your tax filings or have been issued an arbitrary tax assessment by the CRA.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."


Without the interest and penalties relief provided by the Voluntary Disclosure Program, a Taxpayer could be looking at up to 12 months of late-filing penalties, interest in accordance with the prescribed rates, and possibly gross-negligence penalties.

The taxpayer can also waive the normal reassessment period under paragraph 152(4)(b) of the Income Tax Act. However, the CRA has discretion whether to offer to this waiver to the taxpayer or not.

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