How Far Back Can CRA Audit You? Understanding the Statute of Limitations – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Many taxpayers believe CRA can only audit three years of tax returns. That is only partially true. CRA’s audit reach depends on your filing history, the type of tax (income tax, GST/HST, payroll), whether CRA suspects errors, and—even more importantly—whether CRA alleges misrepresentation, negligence, or carelessness. In some cases, CRA can audit 10+ years or even an unlimited number of years. Understanding CRA’s statute of limitations is essential to protect yourself during audits, objections, and appeals. This guide explains exactly how far back CRA can go, when they can reassess older years, and how to defend yourself if CRA attempts to open statute-barred years.

Legal and Regulatory Framework

CRA’s reassessment powers come from:

• Income Tax Act (s. 152) – income tax assessments

• Excise Tax Act – GST/HST audits (no fixed limitation for audits)

• Tax Administration Act (Quebec) – Quebec tax reassessments
  For individuals and CCPCs, CRA has a 3-year “normal reassessment period” from the date of the Notice of Assessment. For large corporations, the period is 4 years. CRA may reassess beyond these limits when they believe there was misrepresentation due to carelessness, neglect, willful default, or fraud. GST/HST has no statutory limit—CRA may audit any period, though practical guidelines apply.

Key Court Decisions

In Lehigh Cement v. Canada, CRA was allowed to reassess beyond normal limits due to misrepresentation. In Farm Business Consultants v. Canada, the Tax Court ruled that CRA must show evidence of negligence—not just suspicion—to reassess old years. In R. v. Ling, CRA’s use of indirect audit methods for older years was upheld when records suggested incomplete reporting. These cases show that CRA needs justification to open older years but often succeeds unless challenged properly.

Normal Reassessment Periods

Income Tax

• Individuals: 3 years

• CCPCs: 3 years

• Large corporations: 4 years
  CRA generally cannot reassess beyond this period unless misrepresentation is proven.

GST/HST

CRA may audit any period, regardless of age. There is no legislated statute of limitations for GST/HST audits. However, CRA typically audits up to 4–6 years unless fraud or gross negligence is suspected.

Payroll Source Deductions

CRA may audit any year without time limit, though they typically focus on the past 3–4 years.

When CRA Can Go Back More Than 3 Years

CRA may open older years when they assert:

• Misrepresentation

• Negligence

• Carelessness

• Willful default

• Fraud
  Examples include unreported income, missing records, cash transactions, rental income omissions, aggressive deductions, repeated mistakes, offshore income, or bookkeeping deficiencies. CRA must provide reasonable evidence—but taxpayers must rebut the allegations.

Examples of When CRA Opens Statute-Barred Years

• Unreported investment income (T5 not included)

• Cash contractors not reporting all deposits

• Mixed business/personal accounts

• Real estate flips reclassified as business income

• Crypto gains unreported

• Offshore accounts triggering T1135 issues
  CRA combines audit triggers with indirect verification to justify expanding years.

How Far Back CRA Actually Goes in Practice

Income Tax

Most audits: 1–3 years
Medium-risk audits: 4–6 years
High-risk / misrepresentation audits: 7–10+ years

GST/HST

Commonly 2–4 years, but no limit

Payroll

Often 2–3 years, but no legal limit

Director’s Liability

CRA can pursue the director up to 2 years after resignation for older corporate liabilities.

How to Defend Yourself When CRA Opens Old Years

1. Challenge CRA’s Misrepresentation Claim

CRA must justify why older years are being reopened. Weak justification can be overturned at Appeals or Tax Court.

2. Provide Evidence of Reasonable Care

Show that you relied on accountants, kept records, and filed accurately.

3. Gather All Documentation

Bank statements, receipts, contracts, mileage logs, real estate records, and merchant reports.

4. Reconstruct Records If Necessary

CRA cannot penalize you for missing documents if reconstruction is possible and reasonable.

5. File a Strong Notice of Objection

Emphasize time limits, lack of misrepresentation, and procedural fairness.

6. Appeal to the Tax Court (If Needed)

Tax Court often restricts CRA when misrepresentation is not proven.

CRA Tactics to Watch For

CRA often uses:

• Net worth audits

• Bank deposit analysis

• Supplier/merchant matching

• Lifestyle audits

• Real estate registry reviews
  These methods help them justify expanding audit years. Strong rebuttals are essential.

Consequences of Older-Year Reassessments

Older-year reassessments often include:

• Large tax balances

• Interest accumulated for many years

• Gross negligence penalties (50%)

• GST/HST penalties

• Payroll penalties

• Collections enforcement
  These amounts can be overwhelming without proper representation.

How to Reduce Exposure When CRA Goes Too Far

Document your care, challenge CRA’s assumptions, demand justification, prepare a complete audit package, file objections promptly, negotiate settlements at Appeals, and escalate to Tax Court when CRA is unreasonable.

Mackisen Strategy

At Mackisen CPA Montreal, we analyze CRA’s basis for opening old years, challenge unsupported misrepresentation claims, gather strong evidence, reconstruct financial records, prepare audit rebuttals, and file Notices of Objection or Tax Court appeals when needed. We ensure CRA respects the law, not assumptions.

Real Client Experience

A Montreal landlord overturned a 7-year reassessment after we proved CRA lacked justification. A contractor reduced a $180,000 net-worth-based reassessment because CRA misinterpreted deposits. An investor successfully defended statute-barred years after proving reasonable care and full disclosure. A family business avoided GST audit expansion by providing rigorous documentation upfront.

Common Questions

Can CRA audit me for 10 years? Yes—if misrepresentation is alleged. Can CRA audit GST for any year? Yes—no time limit. Can I fight statute-barred reassessments? Yes—with strong evidence. Does CRA need proof of fraud? No—just misrepresentation or negligence.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal protects taxpayers from unfair audit expansions by challenging CRA’s legal basis, dismantling assumptions, and defending your rights through objections and Tax Court appeals.