CRA Compliance & Reporting

Bill C-31: New CRA Audit Powers & Penalties Explained

By October 19, 2026 No Comments
This article is for informational purposes only and does not constitute tax or financial advice. Consult a qualified accounting professional before making any tax or financial decisions.

Quick Answer

Bill C-31 expands the Canada Revenue Agency's audit toolkit by introducing a new Notice of Non-Compliance (NNC) carrying a $50-per-day penalty up to $25,000, plus a 10% compliance-order penalty tied to tax owing. It also empowers CRA auditors to compel oral answers under oath and to demand foreign-held documents under section 231.6 of the Income Tax Act. The reassessment period is extended for the time an NNC remains outstanding, giving CRA more time to reopen past tax years. Ontario individuals and businesses should review their recordkeeping, respond to CRA requests on time, and seek professional representation before refusing or delaying any formal request.

Why every Ontario taxpayer should care about Bill C-31

If you have ever opened a plain brown envelope from the Canada Revenue Agency and felt your stomach drop, Bill C-31 is worth your attention. The rules governing what CRA can ask for, who it can question, and how quickly you must respond have changed. For most people, those changes are manageable with the right preparation.

Bill C-31 is federal legislation that expands CRA's audit and information-gathering powers under the Income Tax Act. It introduces new penalties for non-cooperation, a new type of notice called a Notice of Non-Compliance, and broader reach into records held outside Canada. The practical effect for Ontario taxpayers is that ignoring or slow-walking a CRA request is now significantly more expensive. Our tax audit survival guide covers the general audit playbook; this article focuses on what Bill C-31 changes about it.

$50Daily NNC penalty rate
$25,000Statutory penalty cap
10%Compliance-order penalty on tax owing
~500Days for NNC penalty to reach cap

Pick your path: which Bill C-31 rules apply to you

Bill C-31 touches four reader groups differently. Individual T1 filers face the oral-interview and foreign-document provisions. Sole proprietors should focus on the Notice of Non-Compliance and recordkeeping rules. Incorporated SMEs are most exposed to the 10% compliance-order penalty. Cross-border taxpayers should review the expanded reach of section 231.6.

Not every provision of Bill C-31 applies to every taxpayer. Here is the shortest path through this guide based on how you file:

Individual T1 filer
Read the sections on oral interviews under oath and foreign-held documents. Skip the corporate penalty example unless you own a corporation.
Sole proprietor
Focus on the Notice of Non-Compliance sections and the five-step roadmap. Good recordkeeping is your main defence.
Incorporated SME (CCPC)
Read every section. The 10% compliance-order penalty is calculated on corporate tax owing, which can escalate quickly.
Cross-border taxpayer
Pay particular attention to the foreign-document section. Bill C-31 strengthens CRA's reach into records held outside Canada.

For a broader view of how ClearWealth helps across these categories, see our services.

What Bill C-31 actually changes in plain English

Bill C-31 makes four core changes to CRA audit powers. It creates a new Notice of Non-Compliance with a daily penalty. It adds a 10% compliance-order penalty tied to tax owing. It allows CRA to compel oral answers under oath. And it extends CRA's ability to demand documents held outside Canada.

Notice of Non-Compliance

A Notice of Non-Compliance (NNC) is a new type of formal letter CRA can issue when it believes a taxpayer has not complied with a request. Once issued, the NNC generally triggers a $50-per-day penalty up to a $25,000 cap, and the clock does not stop until CRA is satisfied the request has been answered.

Compliance-order penalty

A compliance order is a Federal Court order forcing a taxpayer to provide information. Bill C-31 adds a new penalty equal to 10% of the aggregate tax owing for each year the order covers, when that tax owing exceeds $50,000.

Oral examination under oath

Bill C-31 strengthens CRA's power to require a taxpayer, employee, or related person to answer questions orally and under oath. Answers given under oath can be relied on later as evidence, which is why professional representation during these interviews typically matters more than in a casual phone call.

Expanded reach for foreign documents

Section 231.6 of the Income Tax Act governs CRA's power to demand foreign-based information. Bill C-31 broadens this reach and sharpens the penalties for refusing to produce documents held outside Canada. For context, see our note on new CRA compliance regulations.

Old CRA audit powers vs new Bill C-31 powers

The easiest way to see what has changed is to put the old regime and the new one side by side. The powers themselves are not entirely new — most build on existing sections of the Income Tax Act — but the penalties, timelines, and tools attached to them are meaningfully different.

ClearWealth Accounting Advisors
CRA audit powers — before vs after Bill C-31
A side-by-side look at what has changed under the new regime.
Power Before After Bill C-31 What it means for you
Oral questioningWritten requests; informal interviewsCompelled oral answers under oathHave representation at every interview
Document inspectionRequest letter; informal follow-upNotice of Non-Compliance with $50/day penaltyRespond on time or costs escalate daily
Foreign-held recordsSection 231.6 request; limited enforcementBroader reach; sharper refusal penaltiesOffshore accounts no longer out of scope
Compliance orderFederal Court order; no automatic penaltyNew 10% penalty on tax owing (over $50K)Refusing a court order can cost tens of thousands
Reassessment clockThree years from original assessmentPaused while NNC remains outstandingDelay extends CRA's window to reopen years
Daily penaltyNo daily accrual for information requests$50/day up to $25,000 capCap reached in roughly 500 days outstanding
Source: Canada Revenue Agency compliance pages, Income Tax Act ss. 231.1–231.7, Department of Finance draft legislative proposals. ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only.

The pattern is consistent. CRA is not getting dramatically broader authority to look at things it could not look at before. It is getting faster tools to compel cooperation and heavier penalties when cooperation does not arrive on time. For compliant taxpayers that is manageable; for those who delay CRA correspondence it is a material change. Our overview of Canada's corporate tax rates gives context on the dollar amounts most Ontario SMEs are working with.

Your 5-step roadmap when CRA contacts you under the new rules

If CRA contacts you under Bill C-31, five steps protect you. Read the letter carefully and identify whether it is a Notice of Non-Compliance. Calendar every deadline the day you receive it. Do not answer oral questions without representation. Scope the records request before producing anything. Engage a qualified tax professional before day 15.

The 90 days after CRA opens a file are the window where most of the real decisions get made. Here is the sequence that typically works best.

ClearWealth Accounting Advisors
The 90-day NNC timeline
Five milestones that typically shape the first three months after a Notice of Non-Compliance.
Day 0
NNC received
Day 1–5
Engage tax professional
Day 15
Records scoped
Day 30
Formal response filed
Day 45–90
Dialogue or order risk
Source: CRA Business Audits overview; practical workflow typical of CRA audit representation engagements. ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only.
  1. 1
    Read the letter carefullyA request for information, an audit opening letter, and an NNC all look superficially similar but trigger very different clocks. Identify which one you have before doing anything else.
  2. 2
    Calendar every deadlineMark the response date, the day the $50 penalty would start if it is an NNC, and any meeting date CRA has proposed. Deadlines missed by one day are treated the same as those missed by thirty.
  3. 3
    Do not answer oral questions without representationUnder Bill C-31, oral answers may be taken under oath and used later in reassessment or court. A ten-minute phone call is not low-stakes anymore.
  4. 4
    Scope the records request before producing anythingCRA requests often read broadly, and producing more than asked for can widen the audit. Narrow the scope in writing before handing over documents.
  5. 5
    Engage a tax professional before day 15Raise objections early through the notice of objection process or direct dialogue with the auditor. Waiting until a compliance order reaches Federal Court costs more and gives you fewer options.

The real cost of ignoring a Notice of Non-Compliance

A Notice of Non-Compliance left outstanding for 500 days generally reaches the $25,000 statutory cap. If CRA then obtains a compliance order and the related tax owing exceeds $50,000, an additional 10% penalty may apply. The two penalties can stack, which is why early engagement typically costs far less than delay.

Numbers land better than abstract penalty descriptions. Consider a typical Ontario corporation that receives a Notice of Non-Compliance and does not respond.

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NNC cumulative penalty by days outstanding
The $50-per-day penalty hits the $25,000 statutory cap in about 500 days.
Daily rate
$50 / day
Statutory cap
$25,000
Days to cap
~500 days
Source: Department of Finance Canada draft legislative proposals; Income Tax Act proposed amendments to ss. 231.1–231.7. ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only.

At $50 per day, the penalty hits the $25,000 cap in roughly 500 days. If CRA then obtains a compliance order, the separate 10% penalty on tax owing can apply on top.

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Compliance-order penalty: 10% of tax owing
What the new 10% penalty looks like at four common Ontario SME tax-owing levels.
Source: Department of Finance Canada news releases; Bill C-31 proposed amendments to the Income Tax Act. Figures are illustrative only; applies where aggregate tax owing exceeds $50,000. ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only.

For a corporation with $250,000 of tax owing across the years covered, that is another $25,000; at $500,000 owing, it is $50,000. Readers with unreported income from earlier years should also understand the voluntary disclosures program, which can sometimes reduce exposure before CRA opens a file.

Six mistakes Ontario businesses make with CRA requests

Most of the costly outcomes under Bill C-31 trace back to a handful of recurring errors. Avoiding them typically does more than any defensive legal strategy.

  • →Treating a Notice of Non-Compliance like regular mail. The $50-per-day clock generally starts the day the notice is issued, not the day you open the envelope.
  • →Answering CRA's oral questions without representation. Under Bill C-31 those answers can be taken under oath and used as evidence in later proceedings.
  • →Producing more documents than CRA asked for. Over-production often widens the scope of the audit and may surface issues that were not originally in question.
  • →Assuming foreign-held records are out of reach. Section 231.6 generally applies to documents held anywhere in the world, not just within Canada.
  • →Missing the window to object. A Notice of Non-Compliance can typically be challenged, but only on a tight timeline that starts running immediately.
  • →Waiting until a compliance order is filed in Federal Court. By that stage the 10% penalty is already on the table and legal costs climb quickly.

Cross-border taxpayers face an additional layer of complexity. See our note on cross-border tax compliance for how US-side rules can interact with CRA requests.

Bill C-31 and CRA audit powers: your questions answered

The answers below are intentionally short and quotable. If a question matches your situation, read it in isolation; context from the rest of the article is not required.

What exactly is Bill C-31 and when does it take effect?

Bill C-31 is federal legislation that expands CRA's audit and information-gathering powers under the Income Tax Act. Some provisions apply from Royal Assent while others take effect on specific dates set by the Act. Confirm current effective dates with CRA or a qualified tax advisor.

Can the CRA really force me to answer questions under oath now?

Bill C-31 strengthens CRA's power to require oral answers under oath during an audit or information request. This can apply to taxpayers, their employees, and certain related persons. You generally have the right to be represented during the interview.

How much is the Notice of Non-Compliance penalty and does it apply to individuals or just businesses?

The penalty is generally $50 for each day the notice remains outstanding, up to a $25,000 maximum. It can apply to individuals, sole proprietors, and corporations. The clock typically starts when CRA issues the notice, not when you receive it.

What is a compliance order, and how is it different from a regular CRA audit letter?

A compliance order is a Federal Court order compelling a taxpayer to provide information CRA has already asked for. It is more serious than a regular audit letter because non-compliance can trigger an additional 10 percent penalty on aggregate tax owing when that amount exceeds $50,000.

Does Bill C-31 give CRA access to my foreign bank statements or offshore accounts?

Section 231.6 of the Income Tax Act already lets CRA request foreign-based information. Bill C-31 broadens this reach and adds sharper consequences for refusing to produce documents held outside Canada. Keep clean records and respond to any formal request with professional guidance.

How far back can CRA reassess my taxes under the new rules?

The normal reassessment period for most Canadian individuals is three years from the original notice of assessment. Bill C-31 generally pauses that clock while a Notice of Non-Compliance remains outstanding, effectively giving CRA more time to reopen past years.

I am a sole proprietor. Do these rules change anything for me, or is this a corporate issue?

Sole proprietors are directly affected because their business records and personal records are legally the same set of documents. A Notice of Non-Compliance issued to a sole proprietor applies personally. Clean monthly bookkeeping is typically the single biggest defence.

What should I do first if I receive a Notice of Non-Compliance from CRA?

Open it the same day, calendar every date it mentions, and contact a qualified tax professional before day 15. Do not produce documents or call the auditor until a professional has reviewed the request. For more context, see our insights & updates library.

Facing a CRA letter you didn't expect?

ClearWealth Accounting Advisors represents individuals and businesses across Ontario in CRA audits, objections, and voluntary disclosures. If a Notice of Non-Compliance has arrived or you want to make sure your records would hold up, book a consultation and we will walk through your situation in plain English.

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This article is for informational purposes only and does not constitute tax or financial advice. Consult a qualified accounting professional before making any tax or financial decisions.

Sources & References