No More Sworn Testimony, But Audits Are Still Stress Inducing

Geoff Currier and Evelyn Jacks

“That” Phrase: it’s one no taxpayer wants to hear – digitally or otherwise. “You’re being audited.” If you’ve had to deliver that news you’ll know that the reaction can range from indignity to shock to panic. Based on the latest piece of legislation before Parliament, you might have to tell more of your clients to buckle up, it’s going to be a bumpy ride. CRA will now have greater powers. Consider this:

Most Changes Work for CRA: The new legislation is now in Bill C-31 and it is essentially an amended bill from a piece of draft legislation first introduced on August 12, 2024 and again August 15, 2025. Thankfully, one of the more controversial items has been removed. The Minister will no longer be able to compel taxpayers to provide sworn, oral testimonies when they are being audited. We discussed this most recently in depth in Knowledge Bureau’s Year End Tax Planning CE Summit. This intrusive action was to occur either in person or by affidavit, under proposed section 231.41 of the Income Tax Act.

Recordings Not Permitted. However, it still appears that CRA will not permit recordings of an interview by a third party. This would be a significant tool for the taxpayer to be covered in the case of any disputes or misunderstandings. Knowledge Bureau will cover this topic in more detail during the May 27 CE Summit which will update attendees on the federal government’s Spring Economic Update and the new legislation: Bill C-30 introduced on April 29, right after the Spring Economic Update, which implements a number of new personal and business tax measures and has received first reading; and Bill C-31, also in first reading, which was introduced on May 4, 2026.  

Third Parties Better Protected. Speaking of third parties, if the agency demands information from a nonrelated third party (i.e. you, as the person who prepared the tax return), the minister will first have to obtain an order from the Federal Court before issuing a non-compliance notice. This represents a healthy check on CRA’s powers and a departure from previous proposals.

New Penalties are Stiff and Infexible. The legislation is proposing a penalty equal to 10% of the total tax payable for each taxation year covered by an compliance order. This is a shift from the former wording which said the penalty would be up to 10%. There is some new discretion on the part of CRA in terms of waiving or reducing the penalty but the taxpayer has little say – reasonableness and fairness will be judged by CRA.

Foreign Holdings Under Scrutiny. If your clients have foreign holdings, they’ll need to know that in the event of a non-compliance order they will be prohibited from using any of their foreign-based information in future legal proceedings.

If there is a dispute involving a contested compliance order, an outstanding non-compliance order or even a judicial review, the reassessment period is paused for the duration. This is intended to prevent taxpayers from dragging proceedings out to the limit of the time period.

Some Money Flows South: In some other news, the cancellation of the digital news services tax on American companies has created a drain on government coffers. To date, the CRA has refunded $148 million to U.S. companies.

Some Money Stays Here: For your lower income clients there is a little good news on the horizon. The GST/HST top-up payment is set to arrive on June 5. The new Canada Groceries and Essentials Benefit, which replaces the GST/HST Credit, is due to be delivered to eligible families on June 5th. The Canada Groceries and Essentials Benefit, which will replace the GST/HST Credit, is due on July 3, increasing quarterly payments by 25% for five years.

The Bottom Line: In the event that you have a client who is facing a significant audit, you’ll need to prepare them for a potentially lengthy and invasive process. CRA can dig as deep and you’ll need to fully prepare your client on their rights and obligations. CRA clearly, and with legislative teeth, is in the position of power.

This speaks to your comfort with the relationship with your client as well. We’ve written in the past about the need for you to stress to your clients that they must be 100% transparent and honest with you when providing you with their tax information. If they aren’t it can cause them, it can also harm you and cost a good deal of time, money and in their case if it’s extreme enough, their freedom. The CRA has been known to drag out audits for months or even years, demanding dozens of documents. Thorough record-keeping cannot be over-emphasized with your clients.

Be sure to listen to our podcast, Real Tax News with Evelyn Jacks and Friends, wherever you listen to your favourite podcasts.