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Understanding Statute-Barred Years for GST/HST Returns
Taxpayers expect a degree of finality when it comes to the Canada Revenue Agency's (CRA) authority to reopen previously filed returns. This expectation gives rise to the concept of statute-barred years.
Generally, the CRA cannot reassess a GST/HST return more than four years after issuing a Notice of Assessment. However, certain conditions and exceptions may apply.
This article explores the concept of statute-barred tax years in the context of GST/HST tax returns and outlines the circumstances under which the CRA may reassess a taxpayer beyond the normal tax reassessment period. Additional scenarios that may arise within this framework are also discussed.
What Does It Mean for a GST/HST Year to Be Statute-Barred?
The term "statute-barred" refers to a legal concept that limits the time within which a legal action may be taken. Once this period expires, no further action can be initiated on the matter.
In the context of GST/HST, a Notice of Reassessment becomes statute-barred four years after the Canada Revenue Agency (CRA) issues the original Notice of Assessment. See Section 298 of the Excise Tax Act.
Within this four-year window, the CRA may audit the tax return and issue a reassessment if it concludes that the original assessment was incorrect. However, once the four-year period has passed, the CRA is no longer permitted to reassess the taxpayer. Any reassessment issued after this period is considered statute-barred and, as a result, null and void.
When Can the CRA Reassess Beyond the Four-Year Limit?
In certain situations, the Canada Revenue Agency (CRA) may audit and reassess a taxpayer beyond the standard four-year period. However, under Subparagraphs 298(4)(a)-(c) of the Excise Tax Act, the CRA must demonstrate at least one of the following conditions:
- There was a misrepresentation due to carelessness, neglect, or willful default by the taxpayer or agent.
- The taxpayer acted fraudulently in filing the tax return or providing information.
- The taxpayer waived the right to a statute bar and allowed the notice of reassessment.
The burden of proof lies with the CRA when making a reassessment outside the normal reassessment period. It is important to note that a mere reporting error does not satisfy these criteria. As established in Boucher v. Canada, 2004 F.C.A. 46, the CRA must prove that the error falls within one of the specified categories to justify a reassessment beyond the four-year limit.
What is my recourse, if my GST/HST returns are reassessed outside the normal reassessment period?
Where you are reassessed outside the reassessment period, you can file a Notice of Objection to the CRA, and thereafter an appeal to the Tax Court of Canada, if needed. Our experienced Canadian tax litigation lawyers can help you put your best case forward for your objection or appeal.
Understanding the Impact of CRA Delays on the Statute-Bar Period
The statute-bar period begins only after the CRA issues a Notice of Assessment. However, if the CRA unreasonably delays issuing this notice, a taxpayer may be placed in a difficult and uncertain position, unsure of the status of the assessment and potential reassessment risks.
In such circumstances, the taxpayer's initial course of action should be to formally write to the CRA, requesting that the Notice of Assessment be issued without further delay. This written communication serves as an official record of the taxpayer's efforts to prompt the CRA and can be crucial if further legal steps become necessary.
If the CRA continues to delay despite the request, the taxpayer may need to pursue judicial review by applying to the Federal Court. Judicial review is a legal process whereby the court can compel the CRA to issue the tax assessment when the delay is deemed unreasonable and or prejudicial to the taxpayer's rights. This step ensures accountability and prevents indefinite waiting periods that could disadvantage taxpayers.
It is also important to differentiate this scenario from cases where the CRA has mailed a Notice of Assessment, but the taxpayer never actually receives it. According to Canadian tax law, once the CRA mails the Notice of Assessment, it is legally considered received by the taxpayer on that mailing date, regardless of actual receipt.
Consequently, the statute-bar period begins to run from the date the notice was mailed. This principle was upheld in the case of Schafer (A.) v. Canada, [2000] G.S.T.C. 82 (F.C.A.), emphasizing that the reassessment timeline is based on the mailing date, not on when the taxpayer becomes aware of the notice.
However, if it is established that the Notice of Assessment was never mailed to the taxpayer—due, for example, to an error by the CRA, such as sending the notice to the wrong address—then the statutory timelines for objection, reassessment or limitation will not begin to run. See Aztec Industries v. Canada, [1995] 1 CTC 327.
PRO TAX TIPS: Ensuring Protection Under the Statute Bar: The Importance of Accurate GST/HST Returns
To ensure certainty and to allow the statute-bar period to begin properly after the issuance of a Notice of Assessment, taxpayers must file returns truthfully, carefully and without fraud. Filing accurately provides peace of mind, knowing that the Canada Revenue Agency (CRA) cannot reassess the GST/HST return after four years—unless the taxpayer explicitly waives the right to the statute bar.
If a mistake is suspected on a previous return, our experienced Canadian tax lawyers can assist in determining whether the issue is a simple reporting error or if it impacts the applicability of the statute bar, helping taxpayers protect their rights and avoid unexpected reassessments. We can also help you correct such errors on lenient terms under the Voluntary Disclosure Program of the CRA.
Frequently Asked Questions (FAQs):
What does it mean for a GST/HST year to be statute-barred?
A GST/HST year is considered statute-barred when the period during which the Canada Revenue Agency (CRA) can reassess your filed return expires. Generally, this period is four years from the date the CRA issues the original Notice of Assessment. After this four-year window, the CRA cannot reassess the taxpayer's tax return, and any reassessment issued beyond this period is null and void.
Are there situations where the CRA reassess a GST/HST return beyond the Normal four-year period?
The CRA may reassess beyond the normal four-year period if it can prove one of the following conditions under Subparagraphs 298(4)(a)-(c) of the Excise Tax Act:
- There was a misrepresentation due to carelessness, neglect, or willful default by the taxpayer or agent.
- The taxpayer acted fraudulently in filing the return or providing information.
- The taxpayer waived the right to a statute bar and allowed the notice of reassessment.
The burden of proving the foregoing lies with the CRA, and mere reporting errors do not qualify for reassessment beyond the normal period.
What options does a taxpayer have if reassessed outside the normal reassessment period?
If reassessed beyond the reassessment period, the taxpayer can file a Notice of Objection with the CRA. If the objection is unsuccessful, the taxpayer may then appeal to the Tax Court of Canada. Our experienced Canadian tax litigation lawyers can assist in preparing and presenting a strong case for your objections or appeals.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
