Limits on CRA Auditors' Powers

Limits on CRA Auditors' Powers

Resolving Tax Disputes (3rd edition) studies tax disputes, conflict levels, and basic strategies. It helps accountants to limit early-stage mistakes and reduce liability.
One of the chapters in RTD3 is about audits and how to handle them. It provides valuable tips to help you navigate the audit process. We’ve included some excerpts from that chapter in this article. 

While broad, the CRA auditors’ powers are not unlimited.  

The limits on auditors’ powers will be discussed under four headings: (1) the statutory time limit; (2) constitutional limits; (3) solicitor-client privilege; and (4) supervisory controls.  

Limits on CRA Auditors' Powers

The Statutory Time Limit

A statutory time limit is a hurdle that reduces an auditor’s right to reassess a taxpayer’s tax liability more than three years after the tax for a particular year was initially assessed.  

Subsection 152(3.1) of the ITA defines the ‘‘normal reassessment period’’ for taxation years of mutual funds and corporations (other than Canadian-controlled private corporations) as the period that ends four years after the day of sending of a notice of assessment for the particular year. For other taxpayers, such as individuals, the normal reassessment period is defined as the period that ends three years after the day of sending of a notice of an original assessment for that year. The three- or four-year period ends on the same day in the third or fourth year as the day on which the initial notice of assessment was mailed. For example, if the initial notice of assessment for an individual for their 2012 taxation year was mailed on June 5, 2015, the normal reassessment period for that taxation year ends on June 5, 2018. 

Sub-paragraph 152(4)(a)(i) of the ITA provides that the Minister may reassess a taxpayer’s tax liability for a taxation year after the normal reassessment period only if the taxpayer’s return contained a misrepresentation that was attributable to neglect, carelessness, or wilful default or if the taxpayer committed a fraud in filing the return or in supplying any information under the ITA. In this context, any inaccuracy in the calculation of tax in a return is considered a ‘‘misrepresentation’’. It is a question of fact as to whether a particular inaccuracy was attributable to neglect, carelessness, or wilful default and this is frequently litigated.  

This statutory time limit does not prevent the Minister from reassessing in response to a taxpayer’s objection or to give effect to a court judgment that orders a reversal or variation of an earlier assessment or reassessment, nor does it prevent the Minister from reassessing at the taxpayer’s request in certain circumstances.  


The existence of any controversy concerning the statutory time limit will become apparent toward the beginning of the audit. That is, the taxpayer will quickly learn whether the auditor intends to review transactions or taxation years for which the normal reassessment period has already expired or is about to expire. In such cases, you will have the delicate task of advising the client about whether to comply with or resist the auditor’s requests, or about whether to waive the time limit and give the auditor additional time to audit a year. We will discuss these issues below.  

Constitutional Limits

The Charter provides constitutional protection for the rights and freedoms listed in it. Relevant to our discussion in this section, sections 7, 8, 13, and 24 of the Charter provide as follows:  

7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.

8. Everyone has the right to be secure against unreasonable search or seizure.

13. A witness who testifies in any proceedings has the right not to have any incriminating evidence so given used to incriminate that witness in any other proceedings, except in a prosecution for perjury or for the giving of contradictory evidence. 

24(1). Anyone whose rights or freedoms, as guaranteed by this Charter, have been infringed or denied may apply to a court of competent jurisdiction to obtain such remedy as the court considers appropriate and just in the circumstances.  

24(2). Where, in proceedings under subsection (1), a court concludes that evidence was obtained in a manner that infringed or denied any rights or freedoms guaranteed by this Charter, the evidence shall be excluded if it is established that, having regard to all the circumstances, the admission of it in the proceedings could bring the administration of justice into disrepute.  

These Charter protections do not generally apply when an auditor is conducting a civil audit; however, if an auditor is gathering information primarily for the purpose of establishing criminal liability, Charter protections will be engaged, and the taxpayer cannot be compelled to provide information that could be used against them. 


Two general principles have emerged from court decisions on this subject.

  1. Evidence that was conscripted from taxpayers under the guise of performing administrative audits is inadmissible in criminal prosecutions for tax evasion. However, documents and information that were lawfully obtained by auditors who were acting within their powers may still be used in a subsequent penal investigation. In exceptional cases, the criminal prosecution may be stayed, i.e., dismissed before a trial.
  2. In civil appeals of tax reassessments, the CRA may not be permitted to use constitutionally tainted evidence to support reassessments and the TCC may rule such evidence inadmissible.

As a tax professional advising a client during an audit, you will have to be alert to the possibility that the auditor may be consciously or unconsciously conducting a criminal investigation when asking for or demanding documents and information. If you suspect this is the case, you may want to take precautionary measures to protect your client’s constitutional rights and restrict the CRA’s access to evidence that could be used to build a criminal case. 

Solicitor-Client Privilege

The third limit on auditors’ investigative powers is the solicitor-client privilege. The solicitor-client privilege protects confidential communications between lawyers and their clients that made for the purpose of giving or receiving legal advice. The CRA is not entitled to inspect or seize any document protected by this privilege, even with a search warrant. You need a working knowledge of the solicitor-client privilege to help your clients preserve their rights and avoid providing the CRA with any damaging information that might properly be withheld.  


 Section 232 of the ITA provides a complete code for dealing with solicitor-client privilege matters.32 Subsection 232(1) defines ‘‘solicitor-client privilege’’:  

. . . the right, if any, that a person has in a superior court in the province where the matter arises to refuse to disclose an oral or documentary communication on the ground that the communication is one passing between the person and the person’s lawyer in professional confidence, except that for the purposes of this section, an accounting record of a lawyer, including any supporting voucher or cheque, shall be deemed not to be such a communication.  

The SCC has summarized the scope of solicitor-client privilege in these terms:  

 In summary, a lawyer’s client is entitled to have all communications made with a view to obtaining legal advice kept confidential. Whether communications are made to the lawyer himself or to employees, and whether they deal with matters of an administrative nature such as financial means or with the actual nature of the legal problem, all information which a person must provide to obtain legal advice and which is given in confidence for that purpose enjoys the privileges attached to confidentiality. This confidentiality attaches to all communications made within the solicitor-client relationship, which arises as soon as the potential client takes the first steps, and consequently even before the formal retainer is established.1   

If the auditor has requested a document that you believe is protected under the doctrine of solicitor-client privilege, you should assert privilege and return the document to the lawyer involved and ask them to discuss the matter with the client. The CRA can then deal with the lawyer directly. Not all privileged documents will need to be protected and the client may choose to waive privilege for some communications, particularly if it substantiates the client’s position. However, this discussion should occur between the client and their lawyer to ensure the scope of the waiver is fully understood. Once waived, privilege cannot be reclaimed.

A lawyer who is prosecuted for failure to comply with a requirement under section 231.2 (i.e., a failure to produce a document demanded by an auditor) can defend on the basis that they, on reasonable grounds, believed that their client had a solicitor-client privilege in respect of the document and announced to the Minister that their non-compliance was intentional and based on the solicitor-client privilege.2 The ITA sets out a complete procedure for asserting claims of solicitor-client privilege in the context of search warrants.

Canada does not currently recognize accountant-client privilege, although the case for expanding the scope of privileged communications to include accountants has been the subject of substantive discussion.3

However, it is common for lawyers to retain accountants as part of the legal services provided to clients, which may bring the accountant’s communications and material under the protection of solicitor-client privilege. Privilege belongs to the client, not the solicitor or accountant. Like lawyers, accountants should be careful not to haphazardly waive their client’s privilege, as this may compromise the taxpayer’s position and lead to a claim against the accountant.

Any time your clients are potentially exposed to criminal prosecution, such as with voluntary disclosures or audits involving unreported income, it is prudent to consider having the client engage a lawyer to maximize the protection of the client’s interests. 

Like lawyers, accountants should be careful not to haphazardly waive their client’s privilege, as this may compromise the taxpayer’s position and lead to a claim against the accountant.

- Peter Aprile, Partner, Tax Litigation


Supervisory Limits

As discussed above, auditors are supervised by team leaders, who are in turn responsible to assistant directors of audit and to the Commissioner of the CRA and to the Minister. Auditors are public officials performing public duties in the public eye. As in any other large organization, supervisors are sensitive to the CRA’s public image, and the more senior the public official, the more sensitive they may be to the possibility of condoning misconduct that might be the subject of an embarrassing question in the House of Commons. Supervisors and their superiors will support auditors who are operating properly within their powers and public mandate; however, they will respond promptly and effectively to legitimate complaints about excessive zeal, discourtesy, or improper conduct. 

The integrity of our tax system depends as much or more on the integrity and civility of the CRA’s personnel as on the law and the courts. A timely appeal to the integrity and civility of a supervisor may avoid the need for recourse to the courts. It is also possible to file a service complaint with the CRA and escalate it to the taxpayers’ ombudsperson.


Speak to Peter and Natalie about this article



1 Descoteaux v. Mierzwinski, [1982] 141 DLR (3d) 590 (SCC), at 618.

2 Income Tax Act, RSC 1985, as amended at subsection 232(2).

3 See Tower v. Minister of National Revenue, 2003 FCA 307.




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