This content was first published by the Canadian Tax Foundation in (2025) 15:3 Canadian Tax Focus / Focus sur la fiscalité canadienne. Republished with permission.
Finding the time limit for a general anti-avoidance rule (GAAR)-based reassessment requires tax professionals to navigate multiple legislative provisions.
The search begins by examining the limitation period that applies to the part of the Income Tax Act relevant for the tax consequences of the GAAR-based reassessment in question.
For part I, the normal reassessment period and its exceptions apply, including the new exception specific to GAAR. However, it may also be relevant to consider whether there are limits on adjustments to tax attributes or limitations arising from a tax waiver.
Note that no time limits can be found within GAAR (section 245) itself. The recent decision in Harvard Properties Inc. v. The King (2024 TCC 139; under appeal) provided a detailed analysis of this issue.
Consistent with prior judicial decisions, the court found that no specific reassessment period applied to GAAR itself. The reassessment periods in section 152 were not incorporated generally into the statutory language of section 245 and would be contrary to GAAR’s object, spirit, and purpose. Further, GAAR is not a charging provision but rather a recharacterization rule applicable to the entire Income Tax Act.
If GAAR is determined to apply to a particular transaction or series of transactions, the assessment is not made under GAAR (that is, not under section 245). Instead, the assessment is made under the part of the Income Tax Act that relates to the applicable tax consequences (Dow Chemical Canada ULC v. The Queen, 2020 TCC 139). The provisions that apply in each case, and enforcement and administration provisions related to them, may include limitation periods, which therefore also apply in the context of a GAAR reassessment.
For example, subsection 152(4) provides that tax consequences under part I need to be assessed within the normal reassessment period unless certain exceptions listed therein apply. This is an important limitation on GAAR reassessments.
Parliament has recognized this and has now tried to reduce its effect: subparagraph 152(4)(b)(viii) permits the Canada Revenue Agency (CRA) to assess up to three years past the end of the normal reassessment period to give effect to the application of section 245 unless taxpayers disclose the transaction under the reportable or notifiable transaction rules.
The time limits provided in section 152 are also subject to exceptions provided elsewhere in the Income Tax Act. For example, subsection 160(2) provides for an initial assessment “at any time” (which, as the court noted in Harvard Properties, overrules subsection 152(4)). All of these provisions extend the timeline for the effects of a GAAR reassessment to apply.
Grace Chow and Henry Shew provide a comprehensive review of time limits across the Income Tax Act (and not just part I) in articles in the Canadian Tax Journal (2021) 69:3 and the 2023 Conference Report (available on TaxFind).
Another relevant factor is that the definitions of “tax benefit” and “tax consequences” in subsection 245(1) include tax attributes (for example, loss carryforwards, paid-up capital (PUC), exempt surplus, undepreciated capital cost (UCC), and adjusted cost base (ACB)).
The CRA and the courts have concluded that reassessment time limits do not prevent the CRA from adjusting certain attributes that arose in a statute-barred year. See, for example, CRA document nos. 2006-0185291E5 (June 11, 2007) and 2002-0157005 (October 11, 2002), where the CRA determined that it could recharacterize income from a statute-barred year as business income, affecting capital dividend account (CDA) and refundable dividend tax on hand (RDTOH) balances. Thus, tax consequences involving adjustments to tax attributes may be permitted even where other tax consequences are statute-barred.
The terms of waivers may also change time limitations on the effect of GAAR reassessments. In Canada v. Honeywell Limited (2007 FCA 22), the court found that where a taxpayer filed a waiver of the normal reassessment period, the GAAR assessment must allege abuse of the provision(s) named in the waiver.
Waivers also assisted the taxpayer in Loblaw Financial Holdings Inc. v. The Queen (2018 TCC 182), where the court found that the CRA could not apply GAAR to years where related waivers did not explicitly consider GAAR.
