CRA Reassessment Process for Corporations

Filing a T2 Corporation Income Tax Return does not necessarily mean that the tax year is permanently closed once the Canada Revenue Agency issues the original Notice of Assessment. In certain circumstances, the CRA can review the return again and issue a Notice of Reassessment that changes the corporation’s tax, interest, penalties, or refund. A corporation can also request a reassessment when it discovers an error or omission in a T2 return that has already been assessed.

Corporations dealing with an overdue return should first review the rules on late corporate tax filing penalties in Canada, because those penalties are separate from changes later made through reassessment.

Understanding the CRA reassessment process for corporations is especially important when a reassessment creates additional tax owing or when the corporation disagrees with the CRA’s position.

What is a CRA corporate tax reassessment?

After processing a T2 return, the CRA normally issues a Notice of Assessment. Understanding what happens after you file a T2 return can help a corporation recognize the difference between an original assessment and a later reassessment. If information is later corrected, updated, reviewed, or challenged, the CRA may reassess that return.

A CRA corporate tax reassessment may result from a review of information reported on the return, further CRA verification, a tax audit, or an adjustment requested by the corporation itself. The reassessment can increase or decrease tax payable, change interest or penalties, or alter the amount of a refund.

It is therefore important not to treat every Notice of Reassessment as evidence that the corporation has undergone a full CRA audit. A reassessment simply means that an assessment previously issued by the CRA has been changed.

How does the CRA reassessment process work?

The process normally begins with the original assessment of the corporation’s T2 return. The CRA may subsequently review amounts reported on the return and, where necessary, request supporting documents or additional explanations.

If the CRA determines that an amount should be changed, it can reassess the tax year and issue a new notice reflecting the revised tax position.

A reassessment may also begin with the corporation. If an eligible expense was omitted, an amount was reported incorrectly, or financial information and tax schedules need to be revised, the corporation can request an adjustment to its assessed T2 return.

The CRA states that requesting a reassessment electronically through current commercial tax preparation software is generally the fastest method. A corporation may also submit the required information to its tax centre, including revised financial statements required for T2 filing, GIFI information or tax schedules where relevant.

For the procedure for correcting a return initiated by the corporation, see our related guide, How to Amend a T2 Corporate Tax Return in Canada.

How long can the CRA reassess a corporation?

The normal reassessment period depends on the corporation’s status at the end of the tax year.

For a Canadian-controlled private corporation (CCPC), the CRA can generally reassess the tax year within three years from the date it sent the original Notice of Assessment.

For a corporation that was not a CCPC, the normal reassessment period is generally four years from the date the original Notice of Assessment was sent.

This distinction is important because the reassessment period generally does not start from the corporation’s fiscal year-end or from the date the T2 return was filed. It is based on the date of the original assessment.

Can the CRA reassess after the normal reassessment period?

Yes. The three- or four-year period is the normal reassessment period, but there are important exceptions.

The Income Tax Act allows the normal reassessment period to be extended by an additional three years in certain circumstances. Examples include certain loss or credit carrybacks and some non-arm’s-length transactions involving non-residents.

The CRA may also reassess outside the normal time limit where a corporation has made a misrepresentation attributable to neglect, carelessness, wilful default or fraud. A valid waiver of the normal reassessment period can also allow specified matters to remain open beyond the usual deadline.

For that reason, a corporation should not automatically assume that a tax year can never be reviewed again simply because three years have passed.

What should you do when you receive a Notice of Reassessment for a T2 return?

The first step is to compare the reassessment carefully with the T2 return that was originally filed.

Determine exactly what the CRA changed and why. The adjustment may result from information previously provided, a request for supporting documents, a difference in the interpretation of the tax rules, or a straightforward reporting issue that can be corrected.

The analysis should not necessarily stop with the amount payable on the notice. A reassessment can affect tax amounts or attributes that may be relevant to other tax years. Reviewing the underlying T2 schedules and supporting calculations can therefore be important before accepting the reassessment as correct.

What if the corporation disagrees with the reassessment?

The corporation can first contact the CRA to understand the adjustment and determine whether additional information may resolve the issue.

If the disagreement remains, the corporation has the right to file a formal Notice of Objection. For corporations, the deadline is generally 90 days from the date of the Notice of Assessment or Notice of Reassessment. An objection can be filed online through the CRA’s business services or in writing, including by using Form T400A. The corporation must explain why it disagrees and provide the relevant facts and supporting documents.

Once an objection is received, a CRA appeals officer reviews the disputed assessment or reassessment. If the matter cannot be resolved through the CRA Appeals process, the corporation may ultimately appeal to the Tax Court of Canada.

The 90-day deadline deserves particular attention. Continuing discussions with the CRA or attempting to provide further documentation should not be assumed to automatically extend the objection deadline.

If the corporation misses the deadline, it may be possible to apply for an extension of time to object. The CRA indicates that an extension application may be available for up to one year after the original objection deadline, subject to the applicable conditions.

Does a corporation have to pay the reassessed tax while objecting?

For most corporations, the CRA generally does not require payment of the disputed tax, interest or penalties while a formal objection or appeal is being reviewed. However, if the reassessment is ultimately upheld, interest can continue to apply to unpaid amounts from the relevant balance-due date.

A corporation may therefore choose to pay some or all of the disputed amount to reduce potential interest exposure. The CRA also permits advance deposits where a corporation anticipates a reassessment of a previous tax year and wants to reduce interest charges.

Different payment rules apply to large corporations. A large corporation filing an objection generally has to pay 50% of the disputed amount as well as all amounts that are not in dispute.

Reassessment vs. amending a T2 return

These terms are closely related but describe different parts of the process.

When the corporation discovers an error and asks the CRA to change a previously assessed return, it is requesting an adjustment to its T2 return. Once the CRA processes that adjustment, it will generally reassess the return.

The CRA can also initiate the reassessment itself after reviewing or verifying information.

In either case, the administrative result is generally a reassessed T2 return and a new notice showing the revised tax position.

A T2 reassessment is not always bad news

A reassessment does not necessarily mean more tax is payable. It can also reduce tax or generate an additional refund. For example, a corporation requesting the correction of an amount that was reported incorrectly on the original T2 may receive a favourable reassessment.

The key is to understand why the reassessment was issued and whether the revised result properly reflects the corporation’s accounting records, supporting documentation and applicable tax rules.

When should a corporation involve a CPA?

A straightforward reassessment can sometimes be resolved by comparing the CRA notice with the original T2 return. Professional assistance becomes more valuable when the reassessment involves a significant amount of tax, affects several tax years, follows a CRA review or audit, or involves a disagreement over the interpretation of tax legislation.

Professional review is also important when a Notice of Objection may be required because the corporation generally has only 90 days from the reassessment date to preserve its formal objection rights.

T2Online.ca, supported by DFD CPA, can assist Canadian corporations with reviewing T2 returns, understanding the source of a CRA reassessment and determining the appropriate next steps when a correction or response to the CRA is required.