Tax Insights: Bill C-31 ─ Legislation to enhance the Canada Revenue Agency’s audit powers is finally released

Issue 2026-23

In brief

What happened? 

After several rounds of consultation, on May 6, 2026, the federal government finally released — as part of a legislative bill (Bill C‑31¹) — its proposed measures to strengthen the Canada Revenue Agency’s (CRA’s) compliance and enforcement powers. Effective upon royal assent of Bill C‑31, changes to the Income Tax Act (the Act) to enhance CRA’s audit powers include:

• introducing new compliance mechanisms
• expanding information gathering powers
• increasing the consequences for non‑cooperation or delay

Why is it relevant?

Bill C‑31 significantly broadens the CRA’s audit and enforcement toolkit by introducing mechanisms such as the Notice of Non-Compliance, daily and percentage‑based penalties, and expanded authority to obtain an authorization to issue unnamed persons requirements, all of which are designed to expedite compliance and reduce audit delays. Notably, the bill does not include the earlier proposal to grant the CRA authority to compel information under oath or affirmation, which had been a significant concern for taxpayers.

Actions to consider

With the CRA’s compliance and enforcement powers expanding, taxpayers should act proactively — not reactively — by conducting a pre-audit review to identify and address risks before an audit begins, and tightening compliance standards across their organization to reduce exposure. In the event of a CRA audit, taxpayers should, as always, be organized, responsive and informed about the full extent of the CRA’s audit powers.

In detail

Background

The 2024 federal budget proposed amendments to the CRA’s information gathering powers under the Act — to enhance the efficiency and effectiveness of tax audits and facilitate the collection of tax revenues on a timelier basis. The Department of Finance released draft legislative proposals for these changes in both August 2024 and August 2025. Bill C-31 incorporates most of the August 2025 proposals, with some significant changes.

Notably, Bill C‑31 does not include the August 2025 proposal to grant the CRA authority to compel information under oath or affirmation — which was of particular concern to taxpayers and advisers. This is a welcome development, as the earlier proposal would have elevated the legal significance of audit responses and exposed individuals to potential perjury charges under the Criminal Code for false statements.

Notice of Non-Compliance

Proposed new section 231.9 of the Act introduces the Notice of Non‑Compliance (NoNC), which the CRA may issue to any taxpayer (or related person) who fails to comply with a request for information or reasonable assistance. There is no de minimis threshold for a NoNC to be issued.

Under the earlier draft legislative proposals, it was unclear whether the Minister could issue a NoNC to any person. Bill C‑31 proposes a safeguard under new subsection 231.9(2). It requires the Minister to obtain a court order under subsection 231.7(1) before issuing a NoNC to a third party, if:

• the non‑compliance is related to an unnamed persons requirement, or
• the CRA seeks information in respect of a person who is not related to the third party

This clarification is a meaningful protection that limits the reach of the NoNC.

Recipients of a NoNC would have 90 days to request a review by the Minister, who would need to respond within 180 days. If the Minister fails to respond within this time limit, the NoNC is deemed to be vacated. If the recipient is dissatisfied with the Minister's decision, they could apply for judicial review within 90 days of the decision.

A daily penalty of $50 (up to a maximum of $25,000) would apply for each day the NoNC is outstanding, unless it is vacated. This penalty would not apply if the non‑compliance was based on a reasonable belief that the information, documents or answers were protected by solicitor‑client privilege. This exemption was introduced in the August 2025 draft legislative proposals, and incorporated into Bill C‑31, in response to feedback on earlier drafts.

Suspension of limitation period

Existing legislation suspends the normal reassessment period when a taxpayer seeks judicial review of a third‑party or foreign-based requirement and when a compliance order court proceeding has commenced. Bill C‑31 contains amendments to section 231.8 of the Act, which provide that the normal reassessment period would be suspended in additional key circumstances:

• while a NoNC is outstanding
• when a taxpayer seeks judicial review of a domestic audit requirement or a NoNC

Importantly, these suspensions would apply not only to the taxpayer, but also to any non‑arm’s length persons, ensuring the CRA is not time‑barred from reassessing related parties while audit disputes remain unresolved. This significantly extends the period during which the CRA could reassess tax liabilities in the event of compliance disputes. 

Requirements to provide foreign-based information or documents

Currently, the CRA may only demand information or documents under section 231.6 for purposes of administering or enforcing the Act. Bill C‑31 proposes amendments that would empower the CRA to require Canadian residents, or non‑residents carrying on business in Canada, to provide information or documents located outside Canada that are relevant to the administration or enforcement of a listed international agreement, or a tax treaty.

Recipients would have a minimum of 90 days to produce the requested information. A review process would be available, allowing taxpayers to escalate the matter to a judge to confirm, vary or set aside the requirement if it is found to be unreasonable. Significantly, Bill C‑31 extends the compliance order process (under section 231.7) to foreign‑based requirements, meaning that non-compliance may now result in compliance orders, a NoNC and the associated penalties — the same consequences as for domestic requirements. Previously, the sole consequence of failing to comply was a prohibition on introducing the information or document as evidence in civil proceedings.

Manner of providing information

Bill C‑31 adds the words “and in such reasonable manner” so that this text — “within such reasonable time and in such reasonable manner” — will appear in sections 231.1, 231.2 and 231.6 of the Act. These proposed new words direct how information must be provided to the Minister and may help clarify the limits of the Minister’s power to request information, particularly regarding the format and the effort required from taxpayers. Unfortunately, the language remains less precise than alternatives already present elsewhere in the legislation.

Compliance order penalties

If a taxpayer or other person fails to comply with an audit request, existing subsection 231.7(1) of the Act allows the CRA to seek a compliance order. Bill C‑31 strengthens this process by:

• extending the compliance application process to foreign-based requirements under section 231.6, and
• specifying that the court has authority to order a taxpayer to answer all questions either orally or in writing, as required by existing paragraph 231.1(1)(d)  

Bill C‑31 also implements a new penalty under subsections 231.7(6) to (9) — if the CRA’s application is successful, a new penalty of 10% of the aggregate tax payable for each taxation year to which the compliance order relates could be imposed, provided the tax owing in respect of at least one of those years exceeds $50,000. The penalty can apply to any person that is the subject of the order (including third parties such as financial institutions) and is calculated on that person’s aggregate tax payable, and not that of the audited taxpayer.

Further, Bill C‑31 adds the following protections, which were not included in the earlier draft legislative proposals:

• the Minister will have discretion to impose a lesser penalty or no penalty at all, and the penalty needs to be fair and proportionate; earlier draft legislative proposals only permitted the Minister to reduce or eliminate the penalty after the taxpayer objected to the penalty — this precondition was removed in Bill C‑31
• no penalty applies if the non‑compliance was based on a reasonable belief that solicitor-client privilege protected the requested information

Updates to CRA administrative guidance

On July 25, 2025, the CRA updated its internal communiqué AD‑25‑04, “Obtaining Information During Compliance Activities,” which sets out the CRA’s expectations regarding the timeliness, format and scope of information and document requests. The guidance outlines best practices for both CRA officials and taxpayers, and notes that it will have to be updated to reflect the new legislative powers, but only upon royal assent of the enacting legislation (i.e. Bill C‑31). 

The takeaway

Once enacted, Bill C‑31 will provide the CRA with a far more robust and flexible audit toolkit. Taxpayers and related parties face increased risk of significant penalties, heightened documentation and evidentiary standards, and a broader global compliance burden. The proposed suspensions to the normal reassessment period mean that audit and reassessment periods could be significantly extended, increasing uncertainty and the need for proactive compliance management. 

Taxpayers should take practical steps now to prepare for the enhanced CRA audit and compliance environment:

• Maintain organized records – Keep all tax‑related documents, including those for foreign transactions and related parties, well‑organized and easily accessible. 
• Strengthen internal protocols – Set up clear processes to track and respond to CRA requests promptly. Assign a senior individual or team to coordinate all audit interactions. 
• Safeguard legal privilege – Be prepared to carefully review information requests. Prepare relevant staff in advance and consult legal counsel to protect privileged information. 
• Respond promptly – Address CRA requests quickly and thoroughly to avoid future penalties and compliance orders. 
• Plan for longer audits – Recognize that audit and reassessment periods may be extended during disputes, increasing potential risk and uncertainty. 
• Prepare for global requests – Multinational businesses should be ready to provide foreign‑based information and coordinate with affiliates abroad. 
• Follow audit best practices – Work collaboratively with CRA auditors, agree on response timelines and keep communication open to reduce misunderstandings. 
• Stay updated – Monitor ongoing legislative and administrative changes and adjust compliance strategies as needed.