Tax Insights: Finance releases draft legislative proposals to enhance CRA audit powers

Issue 2025-33

In brief

What happened? 

On August 15, 2025, the Department of Finance released for consultation draft legislative proposals to strengthen the Canada Revenue Agency’s (CRA’s) compliance and enforcement powers under the Income Tax Act (the Act) and related statutes. The new proposals, collectively with previously released drafts, represent a significant expansion in the CRA’s audit and enforcement capabilities. They:

• introduce new compliance mechanisms
• expand the scope of information gathering
• increase the consequences for non-cooperation or delay 

Most notably, the August 2025 proposals include refinements to penalty provisions and taxpayer protections, reflecting feedback on earlier drafts. These changes will come into force upon royal assent of the enacting legislation.

Why is it relevant?

The proposed amendments to the Act, viewed collectively since originally being introduced in the 2024 federal budget, significantly broaden the CRA’s audit and enforcement toolkit by introducing mechanisms such as the Notice of Non‑Compliance, daily and percentage‑based penalties, expanded authority to compel information under oath or affirmation, and to obtain an authorization to issue unnamed persons requirements, all of which are designed to expedite compliance and reduce audit delays. 

Actions to consider

Corporations and individuals should proactively tighten their compliance standards and be prepared for heightened enforcement actions by the CRA. In the event of a CRA audit, taxpayers should, as always, be organized, responsive and informed about the extent of the CRA’s powers. Interested parties are requested to provide feedback on the draft legislation by September 12, 2025.

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. Draft legislative proposals released in both August 2024 and August 2025 would implement these expanded powers, which would come into force upon royal assent of the enacting legislation.

Providing information under oath or affirmation

The proposed amendments to section 231.1 and subsection 231.2(3) of the Act provide that, in the context of an audit or an unnamed persons requirement, the CRA’s powers to require information, documents, and assistance extend to matters arising under international agreements and tax treaties. This amendment corrects a deficiency identified in a recent Federal Court of Canada decision regarding the Minister of National Revenue’s (the Minister’s) power to issue unnamed persons requirements under subsection 231.2(3). A proposed amendment to section 231.1 would explicitly confirm that the CRA’s powers extend to the collection of tax debts.

A new section 231.41 would empower the CRA to require that answers, information, or documents be provided orally (in person, by videoconference, or other electronic means) or in writing, and — crucially — under oath, affirmation, or by affidavit. This elevates the legal significance of responses and exposes individuals to potential perjury charges under sections 131 and 132 of the Criminal Code for false statements.

This development raises important questions regarding the treatment of interview statements, the obligations to withdraw or correct prior statements, and the evidentiary use of such statements in subsequent proceedings, particularly in the context of employee turnover or poorly worded queries. The audit process, unlike formal discovery, does not provide the same procedural safeguards for affiants.

Importantly, the recently proposed addition of subsection 231.1(4) is a win for taxpayers. It overturns a decision of the Supreme Court of Canada that had upheld the validity of the Minister’s request for a donor list from a registered charity (unnamed persons) on the basis that it was made under section 231.1 (which governs audit powers), rather than section 231.2 (which governs requests for information and requires judicial authorization for unnamed persons). With this change, the Minister would be required to obtain judicial authorization to request this information, regardless of whether the request is made under section 231.1 or 231.2.

Earlier versions of the draft legislation required taxpayers to comply with information requests "without cost to His Majesty in right of Canada," but this language, which was to be added to sections 231.1, 231.2 and 231.6 in the August 2024 draft legislative proposals, was not included in the August 2025 version. This is a good development for taxpayers.

Notice of Non-Compliance

The 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 party) who fails to comply with a request for information or reasonable assistance. There is no de minimis threshold for it to be issued.

Recipients of a NoNC would have 90 days to request a review by the Minister, who would need to respond within 180 days. If dissatisfied, the recipient could apply for judicial review within a further 90 days.

A daily penalty of $50 (up to a maximum of $25,000) would apply for each day the notice is outstanding, unless vacated by the Minister or a court. Notably, the August 2025 proposals clarify that 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 is a new safeguard introduced in response to feedback on earlier drafts.

Suspension of limitation period

The proposed amendments to section 231.8 of the Act provide that the normal reassessment period would be suspended in several key circumstances:

• while a NoNC is outstanding
• when a taxpayer seeks judicial review of an audit requirement or NoNC
• while a compliance order court proceeding is ongoing

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

The proposed amendments to section 231.6 of the Act 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. Failure to comply would result in a prohibition on introducing the information or document as evidence in civil proceedings related to tax enforcement. 

The words “within such reasonable time and in such reasonable manner” would now appear in sections 231.1, 231.2, and 231.6, with “and in such reasonable manner” being new language. The proposed addition is directed to 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 is still 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 court-ordered compliance order. The proposed changes to that subsection would extend the compliance application process to foreign‑based requirements under section 231.6 and specify that the court may order a taxpayer to answer all questions either orally or in writing as required by existing paragraph 231.1(1)(d).

Under subsections 231.7(6) to (9), if the CRA’s application is successful, a new penalty of up to 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.

Key adjustments in the August 2025 proposals include that:

• the Minister would have discretion to impose a lesser penalty or no penalty at all, and the penalty would need to be fair and proportionate; if a taxpayer objects, the Minister could also reduce or cancel the penalty altogether
• no penalty would apply if the non‑compliance was based on a reasonable belief that solicitor-client privilege protected the requested information

The CRA’s ability to seek compliance orders would extend to foreign-based information or documents, and there would be no requirement for a NoNC to be issued before a compliance order can be sought.

Recent update 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.

The takeaway

The August 2025 draft legislative proposals, and prior drafts, once enacted, 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, especially those involving sworn statements. 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.