How far back can the CRA reassess a company after I buy it?

The rule

Income Tax Act s.152(3.1) defines the “normal reassessment period” for most corporations as “the period that ends three years after the earlier of the day of sending of a notice of an original assessment under this Part in respect of the taxpayer for the year” (four years for a corporation that is not a Canadian-controlled private corporation). Past that date, a year is ordinarily closed.

Ordinarily. s.152(4)(a)(i) removes the limit where the taxpayer “has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act.” s.152(4.01) narrows what can actually be reassessed once that is shown: only “to the extent that, but only to the extent that, it can reasonably be regarded as relating to” the misrepresentation itself, not the whole return.

When this changes

Whether a reopened year is your problem depends on structure. Buy the shares, and the corporation you now own is the taxpayer whose year reopened — the exposure sits inside the entity, and a standalone tax indemnity with its own escrow, sized to the reassessment risk rather than folded into the general cap, is the usual fix. Buy the assets from an unrelated seller at fair value, and the reopened year belongs to a corporation you never acquired — the vendor's, not yours — and it stays that way.

One more distinction worth knowing: if the CRA goes further and assesses a gross-negligence penalty under s.163(2)–(3), “the burden of establishing the facts justifying the assessment of the penalty is on the Minister” — it is not presumed against the taxpayer.

Where this played out — from the Case Files

• • Three years that were never actually closed — the share deal where the buyer set the tax indemnity survival at 36 months, then found six years of undocumented management fees
• • An asset buyer who owed nothing on the three years that reopened — the identical finding on an arm's-length asset purchase, where the reopened years stayed the vendor's problem alone

Sources

• • Income Tax Act, s.152(3.1), (4)(a)(i), (4.01) — the normal reassessment period, the misrepresentation exception, and the scope limit on what an extended-period reassessment can actually reach.
• • Income Tax Act, s.163(2)–(3) — the false-statements penalty and the Minister's burden of proof.
• • Treadstone Law — can the CRA go back and audit tax years that are already closed?.