When Finance Minister Chrystia Freeland unveiled the 2024 budget to the House of Commons (the “2024 Budget”) on April 16, 2024, the spotlight was firmly on the government’s intention to increase the inclusion rate on capital gains. Yet tucked away in the fine print were some of the most consequential tax enforcement changes in years – proposals to give the Canada Revenue Agency (the “CRA”) significantly expanded audit powers and new tools to penalize non-compliance.

These measures, rooted in concerns first raised by the Auditor General in 2018 about delays in taxpayer disclosures, aim to close long-standing gaps in the CRA’s ability to obtain timely information. For individuals and businesses, however, the implications are clear: more aggressive compliance obligations, higher penalties, and an audit process with a broader reach than ever before.

Beyond capital gains: What the CRA can now do

The enhanced audit powers and penalties for non-compliance included in the 2024 Budget can be summarized as follows:

Notice of non-compliance

A person who fails to comply with a requirement or a notice to provide assistance or information issued by the CRA could be issued a notice of non-compliance, which would become a new compliance tool. A person issued such a notice would also also be assessed a penalty of $50 for each day the notice remains outstanding, to a maximum of $25,000.

A person issued a notice of non-compliance could request a review by the CRA and, if the notice is upheld, seek judicial review at the Federal Court.

If a notice of non-compliance is issued and remains outstanding, the normal reassessment period for any taxation years to which the notice applies will be extended for as long as the notice remains outstanding.

Questioning under oath

The CRA would now be entitled to oblige, through a requirement or notice, that requested oral and written information or documentation be provided under oath or affirmation.

Compliance orders

While the CRA can already issue compliance orders, it would now be entitled to impose a penalty equal to 10% of the aggregate tax payable by a person for the applicable taxation years (where the tax owing exceeds $50,000).

A compliance order could also now be issued by the CRA when a person has failed to comply with a requirement to provide foreign-based information or documents.

Stopping the reassessment limitation clock

The application of stop-the-clock rules would be broadened to include situations where a person seeks judicial review of any requirement or notice issued by the CRA.

CRA audit powers face scrutiny and political delays

These amendments were to come into force upon royal assent of the enacting legislation.

  • In August 2024, the federal government introduced draft legislation that included these enhanced audit powers. On September 11, 2024, the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada (the “Joint Committee”) presented a submission regarding the audit powers proposed in the 2024 Budget and included in the August 2024 draft legislation (the “Submission”). The Joint Committee’s Submission strongly criticized the draft legislation and suggested alternatives to the federal government.
  • On January 6, 2025, former Prime Minister Justin Trudeau resigned and announced the prorogation of Parliament until March 2025. As a result, the August 2024 draft legislation died on the Order Paper.
  • In August 2025, the federal government reintroduced the enhanced audit powers through the Legislative Proposals Relating to the Income Tax Act, the Income Tax Regulations, and the Global Minimum Tax Act and Explanatory Notes.

Certain concerns raised in the Submission were taken into consideration by the federal government and included in the draft legislation.

What taxpayers and businesses should consider

 

1. Review compliance processes proactively

    • Businesses should evaluate how quickly they can respond to CRA information requests.
    • Individuals should ensure that personal and investment records are organized and accessible.

2. Assess the risks of penalties

    • A notice of non-compliance could cost up to $25,000.
    • Compliance orders may trigger penalties equal to 10% of the tax owing if more than $50,000 is in dispute.

3. Plan for extended reassessment periods

    • With the “stop-the-clock” measures, the CRA will have more time to reassess.
    • This means tax positions taken today may be reviewed years later.

4. Understand the impact of being questioned under oath

    • The CRA’s ability to compel sworn testimony raises the stakes in audit responses.
    • Taxpayers should seek professional advice before providing oral or written statements.

5. Engage early with advisors

    • Contacting a tax professional at the outset of an audit can help mitigate risks, clarify obligations, and plan a strategy in the event of a dispute.

Conclusion

While the draft legislation has been modified since its original version, the enhanced audit powers contemplated by the federal government will still significantly impact taxpayers undergoing CRA audits.

With these expanded audit powers now reintroduced into the federal legislative process, taxpayers face stricter compliance obligations, longer reassessment periods, and higher penalties for non-compliance. Engaging early can make all the difference. We encourage you to contact a member of our Tax Controversy and Disputes Resolution Group at the outset of an audit to better understand your obligations, anticipate potential challenges, and minimize the consequences of non-compliance.