New CRA Powers for Notices of Non- Compliance – Proposed in the 2025 Federal Budget
In the 2025 Federal Budget, the Canadian government proposed plans to introduce a new tool for the Canada Revenue Agency (“CRA”) called a Notice of Non-Compliance. This proposal will significantly change how the CRA operates with non-compliance, resulting in major consequences for taxpayers who do not respond to CRA information requests accordingly.
What is a Notice of Non-Compliance?
A Notice of Non-Compliance (“NONC”) is a letter the CRA sends when it believes a taxpayer has not fully responded to its request for information or documents.
This is important because the NONC is discretionary. The CRA can send a NONC any time it determines that the taxpayer has not fully complied with a requirement or request for information or documents. Even partial non-compliance can trigger a NONC.
What Happens if You get a NONC?
- The CRA gets more time to audit you since it suspends the normal reassessment period. This suspension of time can impact other related people or companies as well, expanding the CRA’s power.
- There is an automatic penalty of $50 per day, up to a maximum of $25,000. The penalty starts from the day the NONC is issued until the CRA is satisfied that you have fully complied with their request.
Why Taxpayers Should be Concerned?
This new tool gives the CRA powerful audit abilities because:
- The CRA can issue a NONC based on its own review that taxpayers did not provide enough information,
- There are no clear rules about when the CRA can issue a NONC,
- Even if the NONC was unreasonable, the CRA has extra audit time from the suspension of the normal reassessment period, and
- The NONC can impact other unrelated issues or related parties.
What Can Taxpayers Do to Challenge a NONC?
The ability to dispute the NONC is bifurcated. The Taxpayer can challenge (1) the penalty and/or (2) the NONC itself, but the processes differ.
Challenging the Penalty
It may be easier to challenge the penalty as it follows the normal objection process with the CRA and can be appealed to the Tax Court of Canada. This is beneficial as the penalty amount qualifies for the informal procedure, which leads to faster and simpler results.
Challenging the NONC
On the other hand, if the taxpayer seeks to appeal the NONC, the taxpayer will have to wait approximately 180 days for a decision on the review of the NONC, provided there are no other delays. The taxpayer can then apply for judicial review of the decision, which requires more complicated steps such as preparing an affidavit and being cross-examined, increasing the time to reach the stage of a hearing.
Next Steps and Conclusion
The NONC powers of the CRA have yet to be confirmed. However, if implemented, the CRA should establish guidelines around when and how a NONC will be issued to ensure fairness and transparency to taxpayers.
In the meantime, taxpayers should be aware that the proposed NONC represents a significant expansion of the CRA’s audit toolbox. It provides the CRA with increased leverage, extended audit time, and financial penalties to enforce compliance.
Taxpayers should be prepared to respond promptly, thoroughly, and strategically if the NONC regime is enacted.
Scheduling a consult with our experienced team at Rosen & Associates Tax Law can help
you understand more about any questions or concerns you may have with your tax matters and help guide any disputes with the CRA to the best possible outcome.
***Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.
Elias Zafiridis