The expanding reach of the CRA audit powers: What you need to know

On August 15, 2025, the Department of Finance confirmed its intention to move forward with expanding the CRA’s power to demand information and documents from taxpayers. This is a renewal of plans that were originally set out in Budget 2024. There is no bill in Parliament that is actively working to broaden the CRA’s power under the Income Tax Act (Canada). However, the government has released a draft of their proposed amendments.

Current CRA power to demand taxpayer information

Section 231.1 was amended in 2022 to broaden the CRA’s powers to request information from taxpayers. Among other things, the amendments and interpretive case law clarified that CRA can demand information that goes beyond what is contained in tax forms, such as records in accounting books, and extends to documents that should be in the taxpayer’s records. These amendments also eroded case law favourable to taxpayers that clarified that the prior information-seeking power could not permit CRA to compel a taxpayer to answer questions in an oral setting. The 2022 amendments of the Income Tax Act now enable CRA to conduct oral questionings.

Proposed amendments

The CRA can ask “any person”

Section 231.1(1) will be expanded so that the CRA can use their authority to demand “any person” – not just the taxpayer – to provide information and documents regarding the taxpayer’s tax returns and activities. Therefore, all actions previously permitted against a taxpayer can now be extended to others such as employees, clients, family members and possibly even professional advisers such as accountants and lawyers.

It is well-established that CRA is not permitted to override solicitor-client privilege, but there is no guarantee that the CRA will not demand information without regard for whether it attracts the protection of any form of legal privilege.

A new type of notice: The NNC

This introduction of a new section of the Income Tax Act, section 231.9, would allow the CRA to issue a new type of notice called the Notice of Non-compliance (NNC). An NNC represents a more serious enforcement measure, comparable to the CRA’s formal “requirement to provide information,” or RFI.

Under subsection 231.8(1), receiving an NNC will “pause the clock” on a tax year’s statutory limitation period for the taxpayer and non-arm’s length parties until the CRA considers the duties required in the NCC to be fulfilled or until the NCC is vacated on appeal to the CRA or the Federal Court. This effectively allows the CRA to simply issue a NNC in order to generate more time to complete an audit, even though the CRA already has the power to make assumptions (in the absence of information or in contradiction to information received) and reassess on the basis of the assumptions.

Taxpayers will be forced to take NNCs seriously, even if they want to challenge the NNC. The proposed legislation imposes a penalty of $50 for each day the NNC is outstanding, up to a maximum of $25,000.

Questioning under oath or affirmation

Section 231.41 will be another newly created provision in the Income Tax Act. This proposed section will allow the CRA to demand that a taxpayer reply to questions – whether orally in an interview or in writing by way of affidavit – under a sworn oath or affirmation.

Swearing information under oath and affirmation has a number of legal implications, and any such request should be taken seriously.

Furthermore, there appears to be no requirement for individuals who receive a s. 231.41 demand to be advised of their right to retain legal counsel. Nor is there any indication that an oral questioning will involve production of a transcript or other record.

Penalties for not following a compliance order

Section 231.7 allows the CRA to ask the Federal Court to issue a compliance order where an RFI or NNC is outstanding. A compliance order from a court is a more authoritative way to demand taxpayers to follow any one of CRA’s requests, as failure to abide by such an order may carry serious legal consequences.

To apply more pressure on those expected to follow a compliance order, subsection 231.7(6) is proposed to impose a penalty. The penalty for having an outstanding compliance order will be calculated at 10% of the aggregate tax owed in respect to the taxation year(s) to which the compliance order relates. The draft legislation further indicates that this penalty will only apply if the taxes in question exceed $50,000.

The CRA can demand foreign documents

The CRA’s position has been that foreign-based information and document that can be accessed in Canada (e.g. in electronic format) were already within the existing powers to request information under the Income Tax Act. Even still, proposed amendments to section 231.6 indicate that the CRA will be permitted to demand foreign-based information or document that physically exists outside Canada.

Some have raised questions regarding the ability of Canadian statutes to take such effect outside the country, so these provisions, alongside the other proposed provisions, may be qualified if a court is asked to interpret their scope and application.

Key takeaway

Another wave of expansions to the CRA’s audit powers are coming. To prepare, taxpayers and their advisors should familiarize themselves with the proposals and consider how they would affect their operations.

Our tax dispute resolution team is available to advise and assist taxpayers and professionals with a broad range of audit issues and CRA administrative policies and programs.

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