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In the 2025 Federal Budget1, the Canadian government confirmed that it intends to proceed with measures with respect to non-compliance with information requests which were set out in the August 2025 legislative proposals.2
Key among those measures is an amendment to the Income Tax Act that, if passed, would give the Canada Revenue Agency ("CRA") a new, powerful tool - the notice of non-compliance ("NONC") - to compel taxpayers to provide information and documentation, and also give itself more time to audit.
Proposed s. 231.9
Finance first proposed the NONC in the 2024 Budget and then, after receiving commentary and feedback from the public, reiterated the proposal with minor tweaks in the 2025 draft legislation. The new tool, provided for in s. 231.9, permits the CRA to issue an NONC "at any time" if it determines that a person has failed to comply "in full or in part" with certain requests for information by the CRA.3
As set out below, the key features of the NONC are as follows:
- It is discretionary and can be issued by the Minister "if it determines" that the taxpayer has not fully complied with a requirement to provide information or documents;
- It suspends the normal reassessment period for all issues and for all non-arms' length parties until the Minister "is satisfied" that the information has been provided; and
- It comes with an automatic penalty of $50 per day up to a maximum of $25,000.
The NONC is Discretionary
A key feature of the NONC is that the Minister has the discretion to issue an NONC "if it determines" that the taxpayer has not fully complied with a requirement to provide information or documents, and can do so without a Court order.
Currently, to compel the production of information or documents, the Minister has to apply to the Federal Court for a compliance order and a judge has to be satisfied that the requirements in s. 231.7 are met. The Minister must give notice to the taxpayer when seeking a compliance order from the Federal Court.4 When the CRA seeks a compliance order, the normal reassessment period is suspended from the day that the taxpayer files a notice of appearance and the day in which the application is decided.5
By contrast, the CRA may send an NONC "at any time" if the CRA determines that the requirements in s. 231.9 are met. Even partial non-compliance can result in the issuance of an NONC.6
A taxpayer can challenge the issuance of an NONC by asking the Minister for a second level review under proposed s. 231.9(4). The Minister then has 180 days to determine if the NONC was issued "reasonably". If the Minister determines that the NONC was reasonable, the taxpayer can seek a judicial review of that decision to the Federal Court under s. 231.9(8). The Federal Court will review the decision to issue an NONC under a reasonableness standard, which is a deferential standard that is difficult for taxpayers to overcome.
Example 1: The taxpayer is undergoing a domestic audit for the deductibility of interest on a loan. The CRA requests the loan document, proof of interest payments, and the purpose of the loan. The taxpayer provides the loan document and proof of interest payments but fails to explain the purpose of the loan (even though it is evident based on the loan document). The CRA can issue an NONC.
The NONC Suspends the Reassessment Period
Once the NONC is issued, the normal reassessment period is suspended until the Minister is satisfied that the taxpayer has complied with the request. This means that the Minister could now determine, in its discretion and without judicial oversight, whether to suspend the normal reassessment period or not.
If, on a judicial review to the Federal Court, a judge determines that the NONC was issued unreasonably and vacates the NONC, proposed s. 231.8(f) provides that the normal reassessment period is still suspended from the day on which the taxpayer applied for judicial review and the day on which the application is finally disposed of.7
This means that even if a taxpayer succeeds in showing the Court that the NONC was issued unreasonably, the reassessment period is still suspended.
Notably, the normal reassessment period would be extended with respect to any issue – not just the issue relating to the NONC. The reassessment period is also suspended for all non-arms' length parties.8 This means that if an NONC is issued to one party in relation to a GST/HST audit, the reassessment would be suspended for a related party that is dealing with, say, a transfer pricing audit under income tax legislation, even though there is no connection between the two.
Example 2: Continuing from Example 1, the CRA issues an NONC. The normal reassessment period is suspended until the taxpayer provides information on the reason for the loan. The suspension applies to the domestic audit, but also any other issues, including international or transfer pricing audits, even though the NONC did not relate to that audit.
The NONC Comes with a Penalty
The NONC comes with a penalty of $50 for each day the NONC is "outstanding" up to a maximum of $25,000.9 The NONC is outstanding from the day it has been sent or served, until the CRA is satisfied that the person has complied with the NONC or "demonstrated that they have done everything reasonably necessary to comply."10 Thus, it is possible for a taxpayer to receive multiple NONCs and multiple penalties, depending on the multitude of information requests from the CRA.
There is no penalty if one of the reasons for non-compliance was the reasonable belief that the information, documents or answers were protected from disclosure by solicitor-client privilege.11
The appeal route for the penalty is different from the appeal route for the issuance of an NONC. If a penalty is assessed, the penalty can be challenged through the normal objection and appeals process.12 A taxpayer would have to file a notice of objection to the penalty assessment and then, if unsuccessful, file an appeal in the Tax Court of Canada.13
Implications for Taxpayers
The NONC gives the CRA a powerful tool and leaves taxpayers with limited recourse. The CRA can issue an NONC without court order or prior notice if the CRA believes that information or documents have not been adequately provided. Taxpayers face a high barrier to overturn an NONC as they must show that the Minister's decision to issue the NONC was "unreasonable". There are no criteria in the legislation to determine when an NONC can be issued, and the Federal Court will defer to a Minister's decision to issue an NONC.
Further, and perhaps most troubling, by the time a taxpayer has successfully challenged the NONC, the CRA has already extended the normal reassessment period for all issues and for all non-arms' length parties. Unlike a waiver, which can be provided by a taxpayer and tailored to one or more particular issues, the NONC is not limited to any particular issue.
If a taxpayer finds itself subject to an NONC that it believes was issued unreasonably, it may be strategically beneficial to challenge the NONC by challenging the penalty rather than the issuance of the NONC. This is because the appeal route to challenge the penalty is arguably faster and more favorable than the appeal route to challenge the issuance. There are several reasons for this:
- First, taxpayers can appeal the penalty to the Tax Court of Canada 90 days after a filing a notice of objection, whereas the taxpayer would have to wait 180 days for a decision from the Minister on a review of an NONC.
- Second, the Tax Court of Canada will apply a correctness standard, which is more favorable to taxpayers than the reasonableness standard that applies to a judicial review of the Minister's decision to issue the NONC.14
- Third, as the maximum penalty is $25,000, the informal procedure rules of the Tax Court of Canada should apply, which means getting to trial faster without document and oral discoveries. For the judicial review, the taxpayer would have to prepare an affidavit and be cross-examined on the affidavit, increasing the time to get to a hearing.
Technically, a finding by the Tax Court of Canada that the penalty was assessed incorrectly does not invalidate an NONC. But practically speaking, it would be hard for the Federal Court to determine that an NONC was issued reasonably if the Tax Court has vacated the penalty.
It remains to be seen how the Minister decides to exercise its discretion with respect to this new tool should s. 231.9 become law in its proposed form. It will be important for the CRA to establish guidelines around when an NONC will be issued, so as to avoid the inconsistent and arbitrary application of this new legislative power. If it does become law, taxpayers will need to think strategically about the best way to avoid being issued an NONC, and how to challenge it should one be issued.
The 2025 Federal Budget leaves open the possibility that the August 2025 proposals will be further revised, noting that it will proceed with the proposed measures "as modified to take into account consultations and deliberations since their release."
Footnotes
1 Department of Finance Canada, Canada Strong: Budget 2025 (November 4, 2025), online: https://budget.canada.ca/2025/report-rapport/toc-tdm-en.html.
2 Department of Finance, Legislative Proposals Relating to the Income Tax Act, the Income Tax Regulations, and the Global Minimum Tax Act, and Explanatory Notes (August 2025), online: https://fin.canada.ca/drleg-apl/2025/ita-lir-0825-l-eng.html.
3 This includes a requirement under paragraph 231.1(1)(d) or (f); a requirement under paragraph 231.1(1)(e) to provide an authorized person with all reasonable assistance necessary to allow the authorized person to do anything the authorized person is authorized to do under paragraphs 231.1(1)(a) to (c); or (c) a notice sent or served under subsection 231.2(1) or 231.6(2).
4 Subsection 231.7(2).
5 Subsection 231.8(1)(b).
6 Subsection 231.9(1) provides that the CRA may send an NONC if it "determines that the person has not complied in full or in part."
7 Subsection 231.8(1)(e) and 231.8(1)(f).
8 Subsection 231.8(1)(e).
9 Subsection 231.9(12).
10 Subsection 231.9(11).
11 Subsection 231.9(13).
12 Subsection 231.9(14) provides that "the provisions of Divisions I and J apply, with such modifications as the circumstances require, in respect of the assessment as though it had been made under section 152."
13 Subsections 165(1) & 169(1).
14 Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65.
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