The Canada Revenue Agency (CRA) has recently revised its administrative guidance on the application of third-party penalties under section 163.2 of the Income Tax Act (Canada) (ITA), broadening the circumstances in which the CRA may apply penalties. In particular, informal or non-client specific communications are no longer treated by the CRA as being outside the scope of the third-party penalty regime. Advisors engaged in thought leadership, marketing activities, or online commentary should be cautious in light of the CRA’s new approach.
New Information Circular IC01-1R2 – Third-Party Penalties
In Information Circular IC01-1R2 (released February 2026), the CRA stated that third party “planner” penalties under subsection 163.2(2) may apply where an advisor publishes or promotes aggressive tax avoidance structures or “how to” content directed at a broad or undefined audience where such communications are based on false or misleading statements, even where no specific user or taxpayer is identified. The Information Circular illustrates this expanded application with examples of misrepresentations in tax planning, including materially inaccurate appraiser or valuator reports, the creation of offshore structures to obtain a tax benefit relying on false statements, holding seminars or presentations on how to hide income or assets, and posting misinformation on social media about tax obligations.
The CRA also signals several important administrative and enforcement developments:
- Third-party penalties may be assessed in certain stand-alone audits;[1]
- The CRA no longer articulates an administrative limitation on assessing penalties beyond a six-year period, and emphasizes that no limitation period applies;
- The “good faith” reliance exception is unavailable where a diligent and reasonable inquiry should have been made, even in the absence of actual knowledge;[2]
- For new clients, practitioners are expected to recommend that the client make a voluntary disclosure in respect of false statements made by a prior advisor in earlier years; and
- A person assessed a third-party penalty will fail CRA suitability requirements, resulting in suspension of their EFILE Online services authorization.
This new guidance materially increases the reach and practical application of the third-party penalty regime for professional advisors.
Third-Party Penalties Under the ITA and Jurisprudence
Planner penalty: Under subsection 163.2(2), a penalty may be assessed against any person who makes or furnishes, participates in the making of or causes another person to make or furnish a statement that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by another person for the purposes of the ITA.[3] “Culpable conduct” is defined as conduct tantamount to intentional conduct, or conduct showing indifference to compliance with the ITA or willful, reckless, or wanton disregard of the law. A “false statement” includes a statement that is misleading because of an omission.
Preparer penalty: Under subsection 163.2(4), a penalty may also be assessed against a person who makes, or participates in, assents to or acquiesces in the making of, a statement to, or by or on behalf of, another person that the person knows, or would reasonably be expected to know but for circumstances amounting to culpable conduct, is a false statement that could be used by or on behalf of the other person for a purpose of the ITA.[4] The penalty may be as high as $100,000 plus the person’s gross compensation, including contingent amounts or compensation they may receive in future.
The courts have characterized the third-party penalty as administrative in nature, aimed at maintaining discipline and compliance within the tax system. As a result, the Canadian Charter of Rights and Freedoms does not apply, regardless of the quantum of the penalty.[5] Charter arguments have generally found little traction in civil tax disputes with the CRA outside cases involving search and seizure powers.[6] However, it remains unsettled whether this would hold where a third-party penalty was imposed, for example, for online criticism of CRA interpretations and the advancement of contrary interpretations. It also remains unclear whether a penalty must be tied to any particular taxation year.[7] The CRA emphasizes that the tax planner penalty may be applied even where the CRA has not identified a person who used, could have used, or relied on the false statement.[8]
Implications for Advisors
The CRA acknowledges that tax professionals are entitled and expected to act in the best interests of their clients, including minimizing tax liability within the law. The third-party penalty rules are not directed at legitimate planning, compliance, or advocacy, but rather at advisors who take an active role in creating or promoting tax arrangements founded on false statements, or whose conduct rises to the level of gross negligence.
The revised guidance nevertheless reflects a clear enforcement signal. In light of IC01-1R2, advisors should adopt a heightened level of scrutiny and professional judgment in situations where client decisions or planning positions may be influenced by false or misleading statements.
Combined with the proposed expansion of CRA audit powers, many aspects of the audit process involve court or quasi-court processes that contain traps for the unwary. The CRA may question even good faith advisor conduct. Managing tax risk for even routine matters may require legal counsel in order to ensure the taxpayer’s rights are respected and protected, and the CRA follows a path of reasonable enforcement of the ITA.
