When the CRA can reassess your T2 return

Within certain time limits, the Canada Revenue Agency (CRA) can reassess your return or make additional assessments of tax, interest, and penalties. These time limits vary, depending on the type of corporation and the nature of the reassessment.

• Normal reassessment period
• Extended reassessment period
• Unlimited reassessment period

Normal reassessment period

The normal reassessment period for a T2 return depends on whether or not the corporation was a Canadian-controlled private corporation (CCPC) at the end of the tax year. 

The CRA can usually reassess a return for a tax year:

• within three years of the date it sent the original notice of assessment for the tax year, if the corporation was a CCPC at the end of the year
• within four years of the date it sent the original notice of assessment for the tax year, if the corporation was not a CCPC at the end of the year

The normal reassessment period can be extended for various reasons.

Extended reassessment period

The normal reassessment period can be extended for an extra three years for several reasons, including any of the following:

• to carry back a loss or credit from a later tax year
• when a non-arm's length transaction involving the corporation and a non-resident affects the corporation's tax
• if the corporation pays an amount or receives a refund of foreign income or profits tax
• when a reassessment of another taxpayer's tax for any of the above reasons affects the corporation's tax
• if the reassessment results from a non-resident corporation's allocation of revenue or expenses to its Canadian business or from a notional transaction, such as "branch advance," between the non-resident corporation and its Canadian business
• to give effect to the application of the non-resident trust rules in section 94 or to the application of the foreign investment rules under sections 94.1 and 94.2
• if the income is related to a foreign affiliate of the corporation (for tax years of the corporation starting after February 26, 2018)
• the reassessment is to carry back losses or certain tax credits and deductions where a prescribed form requesting the amendment has been filed on time

Non-resident non-arm's length person (extra six years)

For losses incurred in a particular tax year, the reassessment period for a preceding tax year to which those losses are carried back is extended six years beyond the normal reassessment period if both of the following apply:

• the losses are reduced as a result of a reassessment made to the particular tax year beyond the normal reassessment period for the year
• the reassessment to the particular tax year is made as a consequence of a transaction involving the corporation and a non-arm's length non-resident person

Provincial income reallocation (extra one year)

If the reassessment results from a provincial income reallocation, the normal reassessment period can be extended for one year from the later of:

• the day on which the CRA is advised of the provincial reassessment
• 90 days after the notice of the provincial reassessment was mailed

Substantive CCPCs – Deferring tax using foreign entities (extra one year)

The reassessment period for substantive CCPCs is extended one year beyond the normal reassessment period for any resulting assessment of Part IV tax because of a corporation being assessed or reassessed a dividend refund. This measure generally applies to tax years that end after April 6, 2022, with some exceptions.

Requirements for information and compliance orders

Under proposed changes, effective on royal assent, the existing information gathering provisions would be amended by:

• creating a new notice of non-compliance
• providing the possibility to require that any required information or document be provided under oath or affirmation
• adding a penalty when the CRA issues a compliance order or a notice of non-compliance
• expanding the rules to stop the reassessment limitation clock

If the CRA issues a new notice of non-compliance to a corporation that has not complied with a notice or requirement to provide information or assistance, the penalty would be equal to $50 for each day the notice of non-compliance is outstanding, up to a maximum of $25,000.

If the CRA obtains a compliance order from a court to order a non-compliant taxpayer to comply with a CRA information request, the new penalty would be equal to 10% of the aggregate tax payable for the tax years the compliance order relates to, if the tax payable in each relevant tax year is equal or more than $50,000.

When a corporation contests a requirement for information or an application for a compliance order in court, a "stop-the-clock" rule applies. This rule extends the corporation's reassessment period by the period of time during which the requirement for information or compliance order is contested. The period generally starts when the corporation makes its first court filing to contest the requirement for information or compliance order and ends on the final disposition of the application (including any appeals).

The "stop-the-clock" rules do not currently apply to all situations when a corporation does not comply with a requirement or notice to provide information that the CRA issued. Under proposed changes, effective on royal assent, these rules would be amended so that they apply:

• when a corporation seeks a judicial review of any requirement or notice to provide information issued to the corporation or to a person that does not deal at arm's length with the corporation in relation to the audit and enforcement process
• during any period a notice of non-compliance is outstanding

Unlimited reassessment period

The CRA can reassess a return at any time, including when:

• the corporation has made a misrepresentation because of neglect, carelessness, wilful default, or fraud in either filing the return or supplying information required by the Income Tax Act
• the corporation filed Form T2029, Waiver in Respect of the Normal Reassessment Period or Extended Reassessment Period, with a tax services office before the normal reassessment period expires. Form T2029 can be filed up to three more years after the end of the normal reassessment period if the waiver applies to one of the situations previously described under Extended reassessment period

Sale or disposition of real estate

The CRA may at any time make an assessment, reassessment, or additional assessment of an income tax return beyond the normal reassessment period for any of the following reasons:

• the corporation does not report in its initial income tax return a sale or other disposition of a real or immovable property that is capital property of the corporation
• the partnership of which the corporation is a member did not report the sale or other disposition in the initial partnership information return

If the corporation later amends its return to report the disposition of the property (for example, by filing a request for adjustments under subsection 245(6)), the CRA may still make a reassessment outside of the normal reassessment period within three years of the amendment being filed.

Under this extended reassessment period, the reassessment is limited to amounts reasonably relating to the unreported or previously unreported disposition of real or immovable property that is capital property of the corporation or partnership, as the case may be.

Forms and publications

• Guide T4012, T2 Corporation – Income Tax Guide
• Form T2029, Waiver in Respect of the Normal Reassessment Period or Extended Reassessment Period
• Form T652, Notice of Revocation of Waiver