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

When you buy the shares of a company, you do not buy a clean slate. The CRA’s reach back into a corporation’s past years is set by the Income Tax Act, not by your purchase agreement. This page covers the federal Act only; for provincial taxes or other taxes, ask your advisor what applies.

The normal reassessment period

Subsection 152(3.1) defines the normal reassessment period for each taxation year. For a corporation that was a Canadian-controlled private corporation (CCPC) at the end of the year, it ends three years after the earlier of the day the CRA sent the original notice of assessment and the day it sent an original notification that no tax is payable. If the corporation was not a CCPC at year end, the period is four years. The CRA’s T2 guidance says the same. The glossary entry on the normal reassessment period has the definition.

When the CRA can go further

Subsection 152(4) lets the Minister assess at any time, but after the normal period it permits a reassessment only in listed cases. Two are a misrepresentation attributable to neglect, carelessness or wilful default (or fraud) in filing the return or supplying information, and a waiver filed in the prescribed form within the normal period. The Act lists further situations that add extra years, and the CRA’s T2 page names several, including some involving foreign income or foreign affiliates. It also says a corporation can file Form T2029 for a waiver, and Form T652 to revoke one.

Why it matters in a share purchase

The period is counted from the CRA’s original notice, so ask what has actually been assessed. For each year, ask for the notice of assessment or notification, whether any return is unfiled, whether a waiver was ever filed, and whether the CRA has reassessed or opened an audit. A year still open at closing is one where an adjustment could still reach a company you now own. Ask whether a holdback or a tax indemnity should address it; your lawyer can explain the options.