A holdback has to still exist on the day the liability arrives, and the arrival dates are statutory. Income Tax Act subsection 152(3.1) runs three or four years from the day the CRA sent the original assessment; Excise Tax Act section 298 runs four years from the GST/HST return; section 222 adds ten years to collect; and section 160 has no deadline at all.
Key takeaways
SECTION 01 OF 10
These are not two names for one thing. Treadstone Law’s article on indemnity holdbacks puts the consequence plainly: “Without a holdback, an indemnity is still a valid contractual right — but enforcing it after the money is gone can mean pursuing a seller who may be difficult to locate, judgment-proof, or simply unwilling to pay voluntarily.”
Nothing in the Income Tax Act or the Excise Tax Act moves because a purchase agreement’s survival period expired. Every post-closing exposure carries two dates: the last day the buyer can claim, which is negotiated, and the last day the Crown can assess, which is not. The first is covered in how long the CRA can come back; this page is about the second.
SECTION 02 OF 10
Subsection 152(3.1) defines the normal reassessment period. For a Canadian-controlled private corporation it is “the period that ends three years after the earlier of the day of sending of a notice of an original assessment” and the day a notification of no tax payable was sent. For a corporation that is not a CCPC, four years.
The trigger is the CRA sending something, not the taxpayer filing something. For the target’s final pre-closing year that notice may not exist on the closing date, so its outer limit is not merely unknown — it is undetermined. A holdback counted in months from closing is counted from an event the statute does not use.
The buyer can discover that date only by reading the target’s notices of assessment. The extensions and the waiver route in subsection 152(4) are set out in the companion article.
SECTION 03 OF 10
The Excise Tax Act 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 under section 238 to file a return for the period and the day the return was filed”.
Both limbs are historical facts on closing day: the deadline is fixed by the Act, the return either was or was not filed. A buyer holding the target’s filing history can write down the expiry date of every open period before the funds move.
That date is a floor, not a ceiling. Subsection 298(4) allows an assessment “at any time where the person to be assessed has, in respect of that matter” made a misrepresentation attributable to neglect, carelessness or wilful default, committed fraud, or filed a waiver in effect.
SECTION 04 OF 10
The first is the route back into a closed income tax year. Subparagraph 152(4)(a)(i) lifts the deadline where the taxpayer “has made any misrepresentation that is attributable to neglect, carelessness or wilful default”. No outer date replaces it.
The second and third are transferee liability, and both use the same three words. ITA subsection 160(2): “The Minister may at any time assess a taxpayer in respect of any amount payable because of this section”. ETA subsection 325(2) repeats it for a transferee. See section 160 and GST/HST transferee liability.
What is bounded is the amount, not the time. The CRA states on its co-liability page that a third-party assessment on a non-arm’s-length transfer for less than fair market value “will only include debt that was incurred up to, and including, the date of the transfer.” A ceiling on quantum does not help a bet on time.
SECTION 05 OF 10
A reassessment inside the period creates a debt with its own clock. Subsection 222(3): “The Minister may not commence an action to collect a tax debt after the end of the limitation period for the collection of the tax debt.” Under subsection (4) that period begins 90 days after a notice of assessment is sent and ends “on the day that is 10 years after the day on which it begins”.
It also restarts. Subsection 222(5) resets the ten years when the taxpayer acknowledges the debt, when the Minister commences a collection action, or when the Minister “assesses any person in respect of the tax debt” under section 160(2).
The CRA says the same on its collections page: “We can collect on a debt for either 6 or 10 years from the date the limitation period starts.”
SECTION 06 OF 10
Section 227.1 makes the directors in office when the corporation was required to deduct, withhold, remit or pay “jointly and severally, or solidarily, liable, together with the corporation”, and subsection (4) bars a proceeding “more than two years after the director last ceased to be a director of that corporation.”
That clock starts when a particular person stopped being a director — not at closing, not at the year-end, not when the remittance was missed. The CRA’s circular states that “Directors cease to be directors by resigning or by operation of law”, so the date is the resignation in the closing book.
The exposure surfaces late by design. Subsection 227.1(2) bars liability unless a certificate for the corporation’s liability has been registered in the Federal Court “and execution for that amount has been returned unsatisfied in whole or in part”, or a claim is proved in dissolution, liquidation or bankruptcy. See director liability.
SECTION 07 OF 10
Both halves fail independently. Treadstone Law’s article on drawing against a holdback names the second: “A claim raised after the relevant period has expired generally can’t draw on the holdback, even if funds are technically still held.” Funds held past the survival date are not security.
In Ontario the survival period works only because of a specific permission. Limitations Act, 2002 subsection 22(1) states that a limitation period “applies despite any agreement to vary or exclude it”; paragraph 22(5)1 then lets a period other than the ultimate one be “varied or excluded by an agreement made on or after October 19, 2006.”
That carve-out is available only in a business agreement, which subsection 22(6) defines as “an agreement made by parties none of whom is a consumer”. Section 15(2) sets the outer edge at “the 15th anniversary of the day on which the act or omission on which the claim is based took place.”
SECTION 08 OF 10
A promise is only as durable as the promisor. Canada Business Corporations Act subsection 226(2) provides that, despite dissolution, “a civil, criminal or administrative action or proceeding may be brought against the body corporate within two years after its dissolution”. Two years, against tax clocks measured in decades.
Reaching the distributed money carries the same limit. Subsection 226(4) makes a shareholder who received property “liable to any person claiming under subsection (2) to the extent of the amount received by that shareholder on such distribution”, again with two years from dissolution.
Ontario is drafted differently, worth checking rather than assuming. Business Corporations Act clause 242(1)(b) says only that a proceeding “may be brought against the corporation as if it had not been dissolved”, and section 243(1) makes a shareholder liable “to the extent of the amount received by that shareholder upon the distribution”. Neither sets a period.
SECTION 09 OF 10
Where a purchaser acquires taxable Canadian property from a non-resident, no subsection 116(4) certificate has issued and no exception applies, Income Tax Act subsection 116(5) makes the purchaser liable to remit 25 per cent of the excess of its cost over any certificate limit, and “is entitled to deduct or withhold from any amount paid or credited by the purchaser to the non-resident person” to recover it. See the clearance certificate.
Everywhere else, amount and duration are contractual. Treadstone Law lists how much is held, how long the period runs, what triggers a claim and who holds the funds, then says of all of them: “None of these terms are fixed by law”.
SECTION 10 OF 10
Different exposures expire on different dates, so a single release date is one number doing several jobs. Treadstone Law’s set-off article describes pairing “a holdback for the first period after closing, combined with a set-off right against a longer-term vendor take-back note, so the buyer has protection across the full life of its indemnity rights”. The instruments are compared in earn-out versus holdback.
Holdback lengths are usually chosen by convention. That is market practice, not law; no figure appears here, because Treadstone publishes no market data of its own.
The dates a buyer can compute are these. For each open GST/HST period, four years from the later of the filing deadline and the filing date. For each taxation year, three or four years from the CRA’s original assessment, then up to ten more to collect. For each departing director, two years from the resignation at closing. Against those sit the exposures with no date at all.
One line of enquiry produced nothing usable. Substitute security — a letter of credit standing in for cash — appears on treadstonelaw.ca only in a construction question about the Construction Act permitting “an irrevocable letter of credit or an equivalent form of security”: a construction holdback, not a business-sale escrow. Release machinery is in escrow agents and release conditions.
Yes, for GST/HST specifically. Excise Tax Act paragraph 298(1)(a) bars an assessment more than four years after the later of the return’s filing deadline and the day it was actually filed — both historical facts on closing day — so a buyer holding the filing history can compute the expiry date of every open period before funds move.
No. Subsection 152(3.1) measures the normal reassessment period from the day the CRA sent the original notice of assessment, not from when the return was filed, and that notice may not even exist yet for the target’s final pre-closing year — so its outer limit can be undetermined at closing.
No. Both Income Tax Act subsection 160(2) and Excise Tax Act subsection 325(2) let the Minister assess a transferee at any time — what’s capped is the amount that can be assessed, not how long the Minister has to do it, so no finite holdback period can fully secure against it.
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