The February 27, 2018 Federal Budget proposes several changes to the reassessment periods, in specific situations, as follows:
Reassessment Periods – Foreign Affiliates
When a taxpayer files an income tax return for a taxation year, CRA is required to perform an initial assessment of tax payable. For most taxpayers with foreign affiliates, CRA generally has four years after its initial assessment to audit and reassess the taxpayer’s liability. CRA is generally barred from reassessing beyond the four-year period.
A three-year extended reassessment period currently exists in respect of assessments made for transactions involving a taxpayer and a non-resident taxpayer with whom the taxpayer does not deal at arm’s length. This extended period does not apply in all relevant circumstances to income arising in connection with transactions involving a foreign affiliate.
Budget 2018 proposes to extend the reassessment period for a taxpayer by three years in respect to income arising in connection with a foreign affiliate of the taxpayer.
This measure will apply to taxation years of a taxpayer that begin on or after February 27, 2018.
Reassessment Periods – Requirements for Information and Compliance Orders
Requirements for information are issued by the CRA and require a person to provide any information or documents for any purpose related to the administration or enforcement of the Income Tax Act. Compliance orders, made by a court, can be sought by the CRA where a person has failed to comply with a requirement for information.
A taxpayer may normally be reassessed by the CRA within a fixed period (generally within three or four years of the CRA’s initial assessment of the tax year in question). After that period, the taxation year may become statute-barred. Currently, where CRA issues a requirement for foreign-based information and that requirement is contested by the taxpayer, a “stop-the-clock” rule provides that the period open for reassessment by the CRA is extended by the amount of time the reassessment is contested by the taxpayer.
Budget 2018 proposes to amend the Income Tax Act to introduce a “stop-the-clock” rule for requirements for information generally, and to compliance orders. This rule will extend the reassessment period of a taxpayer by the period of time during which the requirement or compliance order is contested by the taxpayer.
Reassessment Periods – Non-Resident Non-Arm’s Length Persons
If a taxpayer incurs a loss in a particular taxation year, the taxpayer has the ability to carry the loss back in order to deduct against the taxpayer’s income in a prior taxation year. The CRA will then have an additional three years to reassess that prior taxation year as a result of the loss carry back.
Budget 2018 proposes to amend the Income Tax Act to provide CRA with an additional three years to reassess a prior taxation year of a taxpayer adjusted by a loss carry back where a reassessment is made as a consequence of a transaction involving a taxpayer and a non-resident person with whom the taxpayer does not deal at arm’s length.
This measure will apply in respect of taxation years in which a carried back loss is claimed, where that loss is carried back from a taxation year that ends on or after February 27, 2018.
Contact us today for more information on how the 2018 Federal Budget may affect you and your business.