Purchase agreements give tax representations a survival period picked by convention — twelve months, eighteen, sometimes twenty-four. How long the Canada Revenue Agency can still reassess a pre-closing year is set by Income Tax Act subsection 152(4), it is longer than any of those numbers, and in several situations it does not exist at all. The gap is uninsured risk sitting on the buyer.
Key takeaways
SECTION 01 OF 10
Subsection 152(4) does not open with a limitation period. It grants an open-ended power, then carves a limit out of it. The marginal note is Assessment and reassessment: “The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year… except that… may be made after the taxpayer’s normal reassessment period in respect of the year only if” a listed condition applies.
What follows “only if” runs to more than thirty lettered paragraphs, each a route back into a year the taxpayer thinks is closed. None of it turns on a change of ownership: the taxpayer is the corporation, a share sale does not create a new one, and the money comes out of the business the buyer now owns.
SECTION 02 OF 10
Subsection 152(3.1) sets two. Where the taxpayer is “a mutual fund trust or a corporation other than a Canadian-controlled private corporation”, the period “ends four years after… the day of sending of a notice of an original assessment”. “In any other case” — individuals, most trusts, every CCPC — three years, same trigger.
Two details do the work. The clock starts when the CRA sends the original assessment, not at year-end or on filing, so a late return pushes the window later. And the length follows taxpayer type: your target is probably a CCPC on three years, but public or non-resident ownership in its past can put some years on four. The CRA states the rule plainly on its T2 reassessment page.
SECTION 03 OF 10
The target is a CCPC with a December year-end. Its last pre-closing return is filed in June, assessed in August, and the deal closes in November. That year stays open until August three years later — roughly thirty-three months after closing. The year before it closes about twenty-one months out; the one before that, about nine.
Eighteen months of survival therefore covers the oldest exposures and leaves the newest open for over a year after the indemnity has died. The direction of the error is what costs money: the most recent pre-closing year carries the largest balances, the freshest aggressive positions, and the transaction itself — price allocation, pre-closing dividend, the bonus paid to clear retained earnings.
SECTION 04 OF 10
Paragraph 152(4)(b) permits reassessment “before the day that is 3 years after the end of the normal reassessment period” for a defined list: loss and credit carrybacks, consequential assessments, non-arm’s-length non-resident transactions, foreign affiliate amounts, foreign tax paid or refunded, and undisclosed transactions caught by the general anti-avoidance rule. Six or seven years, not three or four.
Paragraphs (b.5) to (b.8) work differently: each starts a fresh three- or four-year clock from the day a missing reportable-transaction, notifiable-transaction, uncertain-tax-treatment or excessive-interest form is finally filed. Unfiled, the year stays open indefinitely. The CRA’s audit manual adds a “stop-the-clock” rule extending the period “during which the requirement for information or compliance order is contested”.
SECTION 05 OF 10
Four paragraphs of subsection 152(4) exist because someone sold shares. Paragraph (b.9): three years past the end of the normal period where the seller filed an election under paragraph 84.1(2.31)(h) (Immediate intergenerational business transfer), and ten years past it under paragraph 84.1(2.32)(i), the Gradual version — thirteen years from the original assessment.
Paragraphs (b.94) and (b.941) do the same for the employee-ownership and cooperative routes: 36 months past the normal period for a disposition “in respect of which the taxpayer claimed a deduction under subsection 110.61(2)” (qualifying business transfer) or subsection 110.62(2). Where any of these sit in the target’s history, the survival period cannot be copied off a precedent.
SECTION 06 OF 10
Subparagraph 152(4)(a)(i) is the one that matters. The Minister may reassess after the normal period if 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”. No outer date. The CRA files this under a heading it writes as “Unlimited reassessment period”.
The threshold is lower than sellers assume. Reopening does not require the gross negligence penalty — “only a misrepresentation attributable to neglect or carelessness need be present”. A figure entered in good faith can qualify: the CRA must prove one misrepresentation “which a normally wise and cautious taxpayer would” not “have committed”.
Two limits run the other way. Subsection 152(4.01) confines a late reassessment “to the extent that, but only to the extent that, it can reasonably be regarded as relating to” the misrepresentation or a waived matter. And “the burden of establishing misrepresentation lies on the CRA in any appeal from an assessment beyond the normal reassessment period”. For penalties it is statutory — s. 163(3).
SECTION 07 OF 10
Subparagraph 152(4)(a)(ii) removes the deadline for a year in which the taxpayer “has filed with the Minister a waiver in prescribed form within the normal reassessment period”. The form is T2029, signed voluntarily — usually to buy time in an audit — by an officer of a company you are now buying.
It does not expire on its own: “There is no apparent restriction on the length of time that a waiver remains in effect, if the taxpayer doesn’t formally revoke it.” Revoking runs on a delay — subsection 152(4.1) still allows six months after the notice of revocation is filed. Its reach is limited to “the matter specified and anything that can reasonably be related” to it. So ask what waivers exist and what each specifies; neither shows on a financial statement.
SECTION 08 OF 10
Excise Tax Act section 298 does not copy the income tax rule. Paragraph 298(1)(a) bars an assessment of net tax “more than four years after the later of the day on or before which the person was required… to file a return for the period and the day the return was filed” — measured from the return, so it never waits for the CRA. Subsection 298(4) mirrors the escape hatch: assessment “at any time” on misrepresentation, fraud, or a filed waiver.
Directors run on a third clock. Section 227.1 makes them “jointly and severally, or solidarily, liable, together with the corporation” for amounts it failed to deduct, withhold or remit, subject to the due diligence defence in (3); subsection (4) bars proceedings “more than two years after the director last ceased to be a director”. That tail is worked through in our article on the director liability a share buyer inherits. Treadstone Law’s note on source deductions and HST gives the commercial half without the sections — “you’re buying the same corporation that owes the money” — and its director liability article adds that resigning “doesn’t retroactively erase exposure”.
SECTION 09 OF 10
A tax representation should survive until the applicable statutory period has run, plus a tail long enough for a notice to arrive and a claim to be made — measured from the CRA’s original assessment date for each open year, which is printed on the notices and obtainable in diligence. One fixed number of months from closing is at once too long for the oldest year and too short for the newest. And since the misrepresentation exception has no time limit, letting the period expire anyway is a decision to absorb that risk — which is why fraud and deliberate misstatement are normally carved out of the survival period, cap and basket.
Treadstone Law is explicit that the deadline is contractual — “The survival period is a creature of contract, not a fixed rule imposed by law” — and its survival period article notes tax reps are “often tied to how long the relevant tax authority could still reassess… rather than to an independently chosen fixed number”, while its fundamental-versus-general comparison places them in “their own middle category”. Those pages give the principle and no number; subsection 152(4) supplies it. A civil clock runs alongside, in its note on limitation periods.
The security must last as long as the promise. Treadstone Law’s tax indemnity article has it right — “the indemnity is the legal promise to pay; the holdback is a practical way to make sure funds are actually available” — while its answer on CRA reassessment holdbacks says only that length is “negotiated based on how real the CRA risk appears to be”, and its article on time limits warns that missing the deadline is “usually fatal to the claim”. An indemnity that outlives its escrow is a promise against a seller who has already distributed the proceeds.
SECTION 10 OF 10
A reassessment three years after closing is defended with documents the buyer did not create. Subsection 230(4) requires records and books of account to be kept “until the expiration of six years from the end of the last taxation year to which the records… relate”. That often reaches further than the reassessment period — which is why preserving the target’s files, and access to the seller, belongs in the agreement as a covenant, not a favour.
One provision runs the buyer’s way. Subsection 152(5), Limitation on assessments, bars the Minister from including on a late assessment “any amount that was not included in computing the taxpayer’s income for the purpose of an assessment… before the end of the period”. It is real, and it is subject to every exception above — the shape of the whole section. Draft against the list, not the headline.
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