In the second installment of Dentons Canada’s series highlighting new tax proposals outlined in Budget 2024, we discuss a number of new measures the proposals introduce to enhance the Canada Revenue Agency’s (CRA) powers to ensure that taxpayers comply with their tax reporting and payment obligations.

Taxpayers and their advisors should be aware of these proposed changes to ensure that they do not inadvertently extend reassessment periods or trigger the imposition of significant penalties should these changes be implemented.

Notice of Non-Compliance

When a person fails to comply with a requirement or notice issued by the CRA, the CRA will be able to issue a “Notice of Non-Compliance.”

There are two significant consequences to the issuance of a Notice of Non-Compliance.

Firstly, the normal reassessment period for the taxation year to which the Notice of Non-Compliance relates would be extended by the period of time that the Notice of Non-Compliance is outstanding.

Secondly, the CRA will be able to impose penalties of $50 for each date that a Notice of Non-Compliance is outstanding to a maximum of $25,000.

The person subject to the Notice of Non-Compliance will be able to request a review by the CRA, and then a further review by a judge of the Federal Court if the CRA review is unsuccessful. If it is determined that the issuance of the Notice of Non-Compliance was unreasonable, or that the person has reasonably complied with the initial requirement or notice at the time that the Notice of Non-Compliance was issued, then the Notice of Non-Compliance would be vacated. The penalty would not apply if the Notice is vacated.

These proposed amendments result in significant consequences for the failure to comply with the CRA’s requests for information or documents. They may discourage taxpayers from advancing bona fide challenges to unreasonable requests made by the CRA and further increase the already high cost of compliance in Canada. 

Questioning under oath

Under the new measures, the CRA will be able to require that information or documents be provided under oath or affirmation. This requirement will result in additional costs for taxpayers as they will have to pay for the commissioning of oaths or affirmations in order to comply. Furthermore, taxpayers who provide false information under oath or affirmation with an intent to mislead may be subject to criminal charges for perjury.

Penalties for failures to comply with compliance orders

The CRA already has the ability to obtain compliance orders under current legislation, requiring taxpayers to comply with CRA’s requests for information. However, the Government has found that the issuance of compliance orders have not been ineffective. Accordingly, the Government is proposing to introduce a penalty when the CRA obtains a compliance order. This penalty would only apply where the tax owing in respect of one of the taxation years in relation to the order exceeds $50,000. The penalty would be 10% of the aggregate tax payable by the taxpayer in respect of the taxation year or years to which the compliance order relates.

Budget 2024 also proposes to extend the reassessment period while a taxpayer seeks a judicial review of any requirement or notice issued by the CRA.

The CRA would also be able to seek a compliance order when a person fails to comply with a requirement to provide foreign-based information or documents under the proposed amendments.

Avoidance of tax debts

The CRA has the ability to assess a person who receives property from a non-arm’s length tax debtor if certain conditions are met. The Government is now proposing to grant the CRA the ability to assess a person who receives property from a party other than a tax debtor for the debtor’s tax debt, if the purpose of the transfer is to avoid the imposition of joint and several, or solidary, liability. The Government is also proposing to extend existing penalties for tax debt avoidance planning to these kinds of transactions. The penalties would be equal to the lesser of 50% of the tax that is being attempted to be avoided and $100,000 plus any amount the person is entitled to receive in respect of the planning activity.

Reportable and notifiable transactions penalty

Budget 2024 announces the Government's intention to remove the general penalty (up to $25,000 and imprisonment up to a year) for the failure to file an information return in respect of a reportable or notifiable transaction under the mandatory disclosure rules. This is due to the fact that there are already specific penalties that apply under the mandatory disclosure rules.

If you have any questions on how these new rules may apply to your situation, please contact a member of Dentons Canada’s Tax group.