When are tax years closed?

Computer desktop and accessories on a desk, highlighting tax returns that become statute-barred

Many taxpayers wonder when their tax returns can be no longer re-assessed or audited by the Canada Revenue Agency (CRA). In other words, the taxpayer is home-free and the tax years closed– although there are always exceptions to a rule, which I’ll explain below.

CRA has a time-frame to re-assess or change their judgement of a tax return up to 3 years from when they initially assessed or processed the tax return. This means that the clock starts ticking on the date when CRA assesses your tax return for the first time. This means that when you receive your notice of assessment is when the 3 year time period starts. It is important to note that this date is not when you file your return, but when CRA actually processes and assesses it. Once this 3 year ‘assessment period’ elapses, the tax return becomes ‘statute barred’ and cannot be re-assessed except for the two exceptions mentioned below.

There is an exception to this rule as alluded to above. There are two instances in which the CRA can re-open a statute-barred tax return:

1. If a taxpayer signs a waiver for CRA allowing CRA to re-examine a statute-barred tax return. Always seek professional tax advice before signing a form such as this from the CRA.

2. If the CRA can prove that a statute-barred tax return contains a misrepresentation which is attributable to neglect, carelessness, wilful deceit, or fraud. An honest mistake of not reporting some minor expenses does not constitute the above.

The important point to note about the above is that if CRA tries to re-assess a tax return older than 3 years, then it would be wise to seek professional advice on the matter as it may be the case that the tax return in question may not be allowed to be re-assessed at all.