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Proposed Legislative Changes Due to Covid-19 Pandemic – Tax Limitation Periods to Be Extended: Canadian Tax Lawyer Analysis

Introduction: The Normal Reassessment Period and Time Limitations on Disputes

In response to the ongoing Covid-19 Pandemic, Parliament has made a number of changes to how the government handles its day-to-day operations.  For example, the CRA has been instructed by the Minister of National Revenue to apply proactive interest relief to those who file their 2019 tax returns late, but before September 1, 2020.  Other timing problems that may arise are not so easily dealt with; the constituting statutes may limit the time for either the Minister or the taxpayer to take action by strict operation of law.  Two of the areas where this is most relevant are the “normal reassessment period” in which the CRA may reassess a taxpayer, and the limitation periods on filing formal objections or Appeals to the Tax Court of Canada.

To address the issue of a strict regime under the various statutes such as the Income Tax Act and the Excise Tax Act, Parliament has introduced draft legislation in the form of the Time Limits and Other Periods Act (Covid-19).  This draft legislation is meant to ensure that neither the government nor taxpayers are deprived of their legal rights during the period of quarantine.

Limitation Periods for Tax Reassessment

One of the most obvious places this new draft legislation will take effect is by extending the “normal reassessment period” under the various taxing statutes.  Under the Income Tax Act for example, the CRA may issue a tax reassessment for an individual taxpayer at any time within a three year period from when the first tax assessment is issued.  This limitation period is different and contains exceptions under certain circumstances and different Tax Acts, and so an affected taxpayer would be well advised to seek professional advice and analysis from an experienced Canadian Tax Lawyer to determine if the CRA has overstepped its bounds.  At any rate, most of the “normal reassessment periods” under the various taxing statutes are set at either three or four years from the date of tax assessment.

See also
Canadian Federal Government COVID-19 Relief Measures

Under the newly proposed legislation, all such limitation periods under all federal Acts of Parliament are suspended for the period of March 13, 2020 to September 13, 2020, a full six month period.  This means that as of March 13, 2020, the earliest possible date that a tax assessment will go “statute barred” – meaning the CRA may not reassess without reasonable evidence of neglect, carelessness or willful default – is September 14, 2020.  As this is still draft legislation, official notice has not yet been given to the public, but once officially passed by Parliament the bill will have retroactive effect back to March 13, 2020.

Tax Dispute Deadlines – Objections and Appeals

On the other end, and of benefit to the taxpayer, the normal time limitation for initiating a dispute by filing a formal Notice of Objection, filing an Appeal to the Tax Court of Canada or an Application to the Federal Court of Canada have all been extended automatically by virtue of the new legislation.

Normally, taxpayers have a ninety-day period within which to file a Notice of Objection from a tax reassessment, and a further ninety-day period after the objection is resolved from which to then continue the dispute by filing an Appeal to the Tax Court of Canada. Both the deadline for filing an objection and filing an appeal to the Tax Court of Canada can be extended by way of a discretionary application filed up to one year after the expiry of the ninety-day period.  However, some taxing statutes such as CPP and EI have no such extension period, and therefore taxpayers that do not file within the normal period cannot pursue an appeal.

See also
CRA Guidance on COVID-19 & Tax Residence | Rotfleisch & Samulovitch PC

Because of its general application to federal statutes, the new proposed legislation effectively extends the time limits for filing an objection or Appeal until at least September 14, 2020.  As with the extension to the tax reassessment periods, the timeline for filing disputes under all acts will be suspended completely between March 13, 2020 and September 13, 2020.

Tax Tips: Protect your Appeal Rights

While at first blush it may appear that the application of this legislation is simple and uniform, there are some subtle nuances, and failure to understand these could lead to losing your right of objection or appeal.  For example, the legislation does not automatically apply to deadlines enacted under regulations prescribed under the various acts.  As such, it is possible that the responsible Minister could reduce or eliminate the proposed extension period.  Understanding the difference is something that our Canadian Tax Lawyers are trained to do.  If you have questions about how the Covid-19 pandemic could affect your financial rights, give our tax law office a call to book an appointment today.

Disclaimer:

"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."

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