Proposed Expansion Of CRA Audit Powers: The Latest

On May 4, 2026, the Department of Finance released updated draft legislation expanding the audit powers of the Canada Revenue Agency (CRA) in the income tax context. While some of the more controversial measures proposed last August have been scaled back, the legislation would still significantly enhance the CRA’s audit toolkit once enacted.

Here are five highlights of the proposed legislation, which has already received first reading in the House of Commons as Bill C-31:

1. No compelled testimony—for now. As currently drafted, the legislation no longer contains the previously proposed power to compel taxpayers to answer questions under oath or affirmation. This was one of the most contentious features of the original proposal, and its exclusion is a welcome development.
2. Changes to the 10% compliance order penalty. Where the CRA obtains a compliance order, the taxpayer may be liable to pay a penalty equal to (rather than up to) 10% of the aggregate tax payable for each year to which the order relates. However, the draft legislation confirms the CRA’s discretion to waive or cancel all or part of that penalty and any related interest otherwise payable where the CRA determines that the penalty is disproportionate or unfair.
3. Daily penalties remain—now with added protection forthird parties. The draft legislation retains the CRA’s ability to issue notices of non-compliance, which carry daily penalties for failures to comply with certain audit requirements. However, where information is sought from a third party in relation to an unrelated person, the CRA must first obtain a compliance order before issuing such a notice to the third party.
4. Extended powers to access offshore information remain. The CRA’s audit powers remain expansive, including in relation to demands for foreign-based information and documents. As contemplated in the original proposal, the draft legislation not only preserves those powers, but such demands are subject to the new notice of non-compliance regime and can now be enforced by compliance orders.
5. Limitation periods paused in various circumstances. The normal reassessment period for the taxpayer and related persons would be suspended in certain situations, including where a notice of non-compliance has been issued and when information demands are under challenge. In practice, this may extend audit timelines and raise the stakes in commencing litigation, but should not deter taxpayers from challenging demands where appropriate.

Have more than five minutes? Contact the authors or any other member of our Tax Controversy & Litigation group for further information, and see our previous Five Under 5 outlining key measures that taxpayers should consider to protect their interests in the face of the new expanded audit powers.