What powers does the CRA currently have when requesting information in connection with an income tax audit? This podcast outlines some important updates and reminders.
What powers does the CRA currently have when requesting information in connection with an income tax audit? To find out and cover off some important updates and reminders on the CRA’s expanded audit powers, we asked Jennifer Reid, managing director of international tax at RSM Canada LLP.
Under current legislation in the Income Tax Act, what powers does the CRA have when requesting information in connection with an income tax audit?
Jennifer: For reference, 231.1 is the section of the legislation we’re referring to and it’s extremely broad. It states that the CRA can examine any document, including the books and records of a taxpayer or any other person that may be relevant in determining the obligation of a taxpayer. They also have the right to examine property or processes of a taxpayer to assist in determining obligations. The CRA can enter any business premises where the business is carried on or any property unless it’s a dwelling – in that case, they need the permission of the individual who lives there, or they would need a warrant issued by a judge. This requires any other person to give all reasonable assistance to answer all proper questions. Further, 231.1(d) requires attendance of people in video conference, in person, or electronically and it obligates you to answer questions either orally or in writing – this requirement was added in 2022.
What can the CRA request from CPAs representing taxpayers in an income tax audit?
Jennifer: CPAs, unlike lawyers, are not entitled to solicitor-client privilege, so any and all documentation in our files is subject to CRA review. We do have a duty to maintain privilege when there is a privileged document subject to solicitor-client privilege. However, our own work product is not subject to privilege and we are required to disclose that to the CRA if they request it and it’s within the proper confines of the audit. As such, it’s always best practice to clarify what the scope of the audit is, the correct years, and the taxpayers under audit. Ensure that you’re only responding to what’s asked and only providing documents that aren’t for statute-barred years and for the actual taxpayer under audit. Prior to 2022, taxpayers could request that a representative (such as a CPA) complete oral interviews or answer questions, but now CRA has the right to request that any person answer questions orally or in writing, so you may not be able to insert yourself in front of the taxpayer.
In which format can the CRA request this material?
Jennifer: They can request verbal or written material and any document in any format. They can also ask you to convert documents to a format they can read – this is based on legislation. Often CRA will ask to have an oral interview with clients or a phone call to ask questions. It is best practice to request those questions in writing to prepare the client, though the CRA isn’t required to provide them. CPAs also need to make sure that clients understand what the questions mean (as some can be quite technical, or the client might not be very business- or tax-savvy), what the CRA is trying to get at, and are prepared to answer these questions correctly. Oral answers could be subject to misinterpretation, for example when a CRA auditor is making notes during an interview, so it is also best practice to record and submit written answers as follow up.
How important is it to stay updated on what the CRA can and can’t request?
Jennifer: As CPAs, we want to make sure that our filing positions are well-supported. We have to assume that at some point, the CRA will audit something that we filed and we want to be able to provide support to clients efficiently and at minimal cost, wherever possible. We also want to manage risk of reassessment by reviewing all of our submissions and ensuring that we’re only providing what is actually requested in the scope of the audit, as well as proactively identifying any risks of reassessment with the client.
In 2024, there were proposed changes to legislation in the Income Tax Act; have any come into effect?
Jennifer: The short answer is no. However, let’s talk a little bit about what those changes are. Budget 2024 proposed to allow the CRA to compel answers under oath, affirmation, or affidavit. It also authorized CRA to issue a notice of non-compliance to a taxpayer who hasn’t complied in full or in part with an information request related to an audit. There was the imposition of an automatic penalty on taxpayers that was issued as part of a compliance order of a federal court. Also, draft legislation may have allowed CRA to extend their normal reassessment period in some circumstances. These were all part of the draft legislation that was not yet passed when Parliament was prorogued in early 2025 and then had to be reintroduced.
There was also new related legislation brought out on August 20, 2025. These small changes are proposed to come into force on the date they receive Royal Assent. They’re not retroactive, but they’ll have to make their way through the House of Commons and Senate and go through the regular process to be passed into law.
What are some top questions that you’re hearing about the new rules?
Jennifer: One is about the new notice of non-compliance. It could extend the reassessment period for a non-compliant person and for a non-arm’s length person, where there’s interplay between their financial affairs. In this case, issues arise when the taxpayer disagrees with the CRA on the issuance of a notice of non-compliance. For example, if the CRA requests information from you and you send them all the information and believe that you’ve complied – and the CRA issues a notice of non-compliance and a penalty (which can be up to 10% of the tax) the matter goes back to CRA for review. In other words, the CRA reviews whether the issue of non-compliance is actually valid or not. This leaves the burden of proof with the taxpayer to prove that they have complied fully. In my experience, very rarely are you successful in getting the CRA to overturn their own decision. There is an option to go to federal court to have it reviewed, but many taxpayers don’t have the means to do that and it doesn’t make sense in some cases.
What other impacts could these changes have on taxpayers?
Jennifer: One pleasant surprise was in the new legislation that came out in August 2025. One big issue that was raised with respect to those compliance orders and the penalties with the initial draft legislation was that if a client refuses to hand over documents that were subject to solicitor-client privilege, there was no out from the penalty. In the newest draft, it appears that the penalty will not apply if it is due to solicitor-client privilege.
The other one relates to the oath or affidavit. As CPAs, we might think, ‘What’s the big deal if I have to testify under oath versus just sending something in?’ Well, if a taxpayer representative lies under oath, that’s subjective or on an affidavit, they could actually be charged with perjury, which is a criminal offense. This brings matters into a whole different realm of the law rather than just tax consequences. There’s obviously concern when we’re dealing with non-savvy taxpayers – they may need to seek legal advice if the CRA requests they testify under oath, along with having their accountant help them with the financial matters.
What are potential impacts of these proposed changes on CPAs?
Jennifer: We need to be very diligent about the requests we’re getting from CRA, what we’re submitting, and discussing these matters with clients. In every audit request I’ve seen, the auditor will request every document under the sun for the taxpayer and their related entities, as they are able to request documents from other entities where there is interplay between their liabilities or their obligations. Very commonly, I will push back and say, “You’re only auditing entity X, and that’s the entity that I’m providing the documents for.” So as first step, try to define and narrow the scope of the audit as best as possible.
As well, the proposals in Budget 2024 and in August 2025 have removed some other commentary in the new legislation with respect to obligation to comply without cost to the minister. Some law firms say this implies there are situations where we could have costs that are applied to the minister. This might be something we should consider as CPAs – whether we need to involve lawyers at any point when we’re going through audit requests.
What’s the best way to stay on top of this issue?
Jennifer: I follow different national accounting and law firms to see their commentary on various changes. I also follow CPA Canada and Video Tax News on LinkedIn, as they post about submissions being made to the Joint Committee of Taxation. Following financial newsletters national newspapers is handy because you will see their commentary on changes as they are happening and learn how they might impact your clients.
Leah Giesbrecht is a communications specialist at CPABC.
