$50 a Day, 10% of Everything: The CRA’s New Penalty Machine

Bill C-31 hands the CRA two new weapons for audits: a $50-a-day notice it can issue without going to court first, and a penalty worth 10% of your total tax for every year a court order covers. The agency that gives correct answers 17% of the time and takes up to 50 weeks to fix…

By Main AdminNov 5, 20266 min read

$50 a Day, 10% of Everything: The CRA’s New Penalty Machine

What happened

Bill C-31, the government's second Budget 2025 implementation bill, cleared clause-by-clause review at the House finance committee last week. It's now headed back to the House as amended (The Hub).

Buried inside are some of the biggest expansions of CRA audit power in years. They take effect on royal assent (PwC Canada). One CPA Canada tax director put it simply: "It's a pretty big stick" (Advisor.ca).

Here are the two new penalties.

Penalty 1: The notice of non-compliance

If the CRA decides you haven't fully answered an audit request for information or documents, it can issue a notice of non-compliance. You then owe $50 for every day the notice is outstanding, up to $25,000 (Parliament of Canada, Bill C-31).

No minimum threshold: there's no floor on what counts as non-compliance before a notice can be issued (PwC Canada).
No judge needed: the CRA can impose "immediate procedural and financial consequences without first obtaining a court order," as a Blakes partner put it (Advisor.ca).
The clock stops for them, not for you: while the notice is outstanding, the CRA's normal reassessment deadline is suspended. That applies to you and to related (non-arm's length) persons (PwC Canada).

Compare that to today. The current penalty for failing to comply with a CRA information request is the greater of $100 or $25 a day, capped at $2,500 (Canada Revenue Agency). The new cap is ten times higher.

Penalty 2: 10% of everything

If the CRA goes to Federal Court and gets a compliance order, a second penalty can apply: 10% of the aggregate tax payable for each taxation year the order covers. It kicks in if the tax for at least one of those years exceeds $50,000 (PwC Canada).

Read that carefully. It's 10% of your total tax payable, not 10% of any extra tax the audit finds. It's also not tied to whether you actually owe anything more.

Here's an illustration, by our math. A small company that pays $200,000 a year in tax, under an order covering three years, could face a $60,000 penalty. That's for a dispute about producing documents, before anyone has decided whether the company underpaid a single dollar.

The penalty can also hit third parties, such as financial institutions, and it's calculated on their tax, not the audited taxpayer's (PwC Canada).

You can't get out of it through the usual taxpayer relief process. A Dentons tax partner called it "the first kind of penalty that can't be waived by the minister under the taxpayer relief provisions" (Advisor.ca).

The numbers that should bother you

$25,000: the new cap per notice, up from $2,500.
500 days: how long the $50-a-day penalty runs before it hits the cap (our math).
180 days: how long the Minister gets to decide your review. You have 90 days to ask for one (PwC Canada).
$9,000: what 180 days at $50 a day adds up to, if the notice stays outstanding while the CRA takes its full review period and then confirms it (our illustration).

In fairness, if the Minister misses the 180-day deadline, the notice is deemed vacated. The penalties don't apply if a notice is ultimately vacated or if you reasonably believed the material was protected by solicitor-client privilege (Department of Justice Charter Statement). The Minister also has discretion to reduce or cancel the 10% penalty if it's disproportionate (PwC Canada).

But "disproportionate or unfair" hasn't been defined (Advisor.ca). And if the CRA says no, your remedy is judicial review in Federal Court, which the same Dentons partner says "would be a challenge for taxpayers, in most cases" (Advisor.ca).

Ottawa also dropped its worst idea: forcing taxpayers to answer audit questions under oath (PwC Canada). Credit where it's due. The bar was low.

The pattern

Tax evasion is real, and the CRA needs to get information. Nobody serious argues otherwise. The issue is the double standard.

When the CRA is slow, nothing happens to it. Complex T1 adjustments have taken up to 50 weeks against a 20-week standard (The Hub). Agents answered general individual tax questions accurately 17% of the time (Auditor General of Canada). There's no daily penalty for that.

When you are slow, the meter runs at $50 a day, and the CRA's own deadline to reassess you stops.

Practitioners already see the shift. One tax litigator described CRA audits as "turning into a conflict from day one" (Canadian Lawyer). A Blakes partner warned that disagreements over document production "may now carry larger legal and financial consequences" (Advisor.ca).

In our view, this is what happens when an agency with nearly 49,000 employees can't run an efficient audit. Instead of fixing its process (clear requests, reasonable timelines, auditors who know what they need), it gets the power to fine people for the friction it creates. A bigger stick is not a productivity plan.

What you can do

Treat every CRA information request as serious from day one. Calendar the deadline and answer completely. If you can't meet the deadline, ask for an extension in writing and keep the reply.
Get legal advice early if privilege or scope is an issue. There's no accountant-client privilege, as one Dentons partner noted (Advisor.ca). A lawyer can assess whether a request is overreaching.
Document your efforts to comply. If a notice or penalty comes, the record of reasonable efforts is what supports a review or a "disproportionate" argument.
Know the review deadline. You'd have 90 days to request a ministerial review of a notice of non-compliance.
Use your rights. The Taxpayer Bill of Rights includes the right to be treated professionally, courteously and fairly. For service problems, file a complaint (Form RC193), then go to the Taxpayers' Ombudsperson.
Call your MP and Senator now, before royal assent. Ask for three things: a clear definition of "disproportionate," a de minimis threshold, and penalties tied to the amount actually in dispute rather than total tax.

The bottom line

The CRA wants $50 a day from you for being slow, and 10% of your entire tax bill if it has to go to court. In our opinion, that's a lot of muscle for an agency that still can't tell you how long it'll take to process your file. Fix the process, then talk about penalties.

Received an aggressive CRA information request? Tell us at crauncovered.com. Anonymous submissions are welcome.

Sources

CRA Uncovered is an independent informational platform and is not affiliated with the Canada Revenue Agency. This article is for general information only and is not professional tax or legal advice. Opinions expressed are those of CRA Uncovered.