Free CPA Canada Tax Practice Questions: Assessments and Appeals

CPA Canada means Chartered Professional Accountants of Canada. Use this focused CPA Canada Taxation page as a short practice test for Assessments and Appeals. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CPA Canada Taxation Elective questions, copied live-exam content, or exam dumps.

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These are original Finance Prep practice questions aligned to this topic area. They are not official CPA Canada Taxation Elective questions, copied live-exam content, or exam dumps. Use them to preview question style and explanation depth before continuing with topic drills, mixed sets, and timed mock exams in Finance Prep.

Question 1

Topic: Assessments and Appeals

Raj is a Canadian-resident self-employed IT consultant. CRA issued a notice of reassessment for his 2024 T1 return after disallowing $42,000 of subcontractor fees as unsupported. The reassessment added income tax and arrears interest. The notice is dated June 10, 2026 and states that any notice of objection must be filed within 90 days of that date.

Today is August 20, 2026. Raj has invoices, a signed subcontract, and electronic payment records. No notice of objection has been filed. He asks whether he should wait for a collections officer to call because he believes the CRA auditor misunderstood the documents.

Which advice should you give Raj now?

• A. File a notice of objection before the 90-day deadline, clearly identify the disputed expense, and provide the supporting documents; deal with payment or interest exposure separately.
• B. File a taxpayer relief request for cancellation of interest and penalties instead of disputing the reassessed business expense.
• C. Submit a T1 adjustment request to re-claim the subcontractor expense and wait for CRA to process it before considering an objection.
• D. Call CRA collections and ask the collections officer to reverse the reassessment based on the invoices and payment records.

Best answer: A

What this tests: Assessments and Appeals

Explanation: A notice of reassessment starts the objection period. When a taxpayer disagrees with the tax assessed, the protective step is to file a notice of objection within the required period and state the issue, requested change, and supporting facts. Raj has evidence that responds to CRA’s basis for the reassessment, so the advice should focus on preserving objection rights and submitting that support. Payment and collections should be managed separately because arrears interest may continue, but a payment arrangement does not replace an objection. Other CRA requests or informal discussions may be useful, but they do not by themselves keep the dispute alive once a reassessment has been issued.

• A T1 adjustment request is not the proper way to preserve rights when the taxpayer is formally disputing a reassessment.
• CRA collections can discuss payment, but collections staff do not reverse the reassessment.
• Taxpayer relief may address interest or penalties in limited circumstances, but it does not resolve whether the subcontractor expense should be allowed.

A timely notice of objection preserves Raj’s right to dispute the reassessment, and the documents directly address CRA’s stated reason for disallowing the expense.

Question 2

Topic: Assessments and Appeals

A CPA is advising Northline Components Ltd., a CCPC that received a CRA notice of confirmation after its objection was denied. CRA maintained a reassessment denying $58,000 of management fees paid to a related corporation. The resulting federal tax and arrears interest still owing total $16,200.

Relevant facts:

• Evidence available: two invoices with generic descriptions, no service reports, and internal emails saying the payment was made partly to “shift profit before year-end.”
• Tax manager’s assessment: probability of success at Tax Court is below 25% unless credible new evidence is found.
• Outside tax litigation estimate: professional fees for a lower-cost appeal process would likely be $9,000 to $14,000; a more formal process would cost more.
• Public disclosure: court filings, hearings, and decisions may become public.
• Client concerns: the bank is reviewing Northline’s credit facility, a competitor has recently alleged aggressive tax planning, and the owner wants to keep additional professional fees below $5,000 unless the chance of success is strong.
• Timing: the appeal deadline is in 30 days.

What should the CPA recommend?

• A. File a lower-cost Tax Court appeal because the disputed tax is modest and the informal nature of the process eliminates the public disclosure and reputation concerns.
• B. Do not proceed with a Tax Court appeal unless credible new support is found before the deadline; close the matter and explain that cost, public disclosure, reputation risk, and low probability of success outweigh the disputed amount.
• C. Wait until the bank review is complete before deciding, because the notice of confirmation preserves Northline’s ability to appeal whenever the reputation risk has passed.
• D. File a formal Tax Court appeal to pressure CRA into settlement because a more rigorous process shows Northline is committed to defending its tax position.

Best answer: B

What this tests: Assessments and Appeals

Explanation: Appeal advice should consider more than whether the taxpayer disagrees with CRA. The available evidence is weak and includes a damaging purpose statement, so the chance of success is low. The potential tax recovery of $16,200 is also small compared with estimated professional fees, especially given the owner’s stated $5,000 fee limit. A Tax Court appeal may create public filings or a public decision, which conflicts with Northline’s bank-review and reputation concerns. A risk-aware recommendation is to avoid further appeal unless new, credible support is obtained before the deadline. Closing the matter is not a concession that CRA is always right; it reflects proportionality, evidentiary strength, cost-benefit judgment, and the taxpayer’s appetite for litigation risk.

• A lower-cost process may reduce fees, but it does not eliminate weak evidence, public disclosure, or reputation concerns.
• A more formal appeal increases professional fees and visibility without improving the underlying support for the deduction.
• Waiting for the bank review risks missing the appeal deadline and does not address the poor probability of success.

The weak evidence, limited fee appetite, public nature of an appeal, reputation concerns, and modest amount in dispute make continuing the appeal path unreasonable.

Question 3

Topic: Assessments and Appeals

ArborTech Inc., a Canadian-resident CCPC, was reassessed for its 2023 taxation year. CRA mailed the notice of reassessment on May 6, 2025, disallowing $180,000 of subcontractor deductions and assessing additional Part I tax and interest. The controller believed the issue would be resolved informally with the auditor and did not ask the prior CPA to file a notice of objection.

Your firm’s intake notes include the following deadline memo. Assume the memo is correct:

• For this corporation, a notice of objection had to be served within 90 days after CRA mailed the reassessment. The deadline was August 4, 2025.
• CRA could consider an application to extend the objection deadline only if the application was made no later than one year after that missed objection deadline. The last day to request an extension was August 4, 2026.
• A Tax Court appeal of the reassessment generally requires a valid objection and CRA confirmation, variation, or reassessment after the objection.

On October 1, 2026, the controller uploaded a notice of objection through CRA’s portal without an extension application. CRA replied that the objection was not accepted because the objection deadline and the extension period had both expired. The CFO says the subcontractor invoices are strong and asks whether the company can now appeal to Tax Court.

Which interpretation should you give the CFO?

• A. The reassessment is final for the disputed tax because no valid objection or timely extension request exists, and Tax Court cannot be used to bypass that defect.
• B. The October 1 submission should be treated as a valid objection because it was filed before CRA issued a formal decision on the upload.
• C. The company can still request an objection extension because the one-year extension period runs from the date management discovered the missed deadline.
• D. The company can appeal directly to Tax Court because CRA’s refusal to accept the late upload is effectively a confirmation of the reassessment.

Best answer: A

What this tests: Assessments and Appeals

Explanation: For a corporate reassessment, the objection right must be exercised within the applicable objection period unless a valid extension request is made within the permitted extension window. Here, the objection deadline was August 4, 2025, and the final day to request an extension was August 4, 2026. The October 1, 2026 upload came after both dates. Strong invoices may support the merits of the deduction, but merits do not restore a missed statutory objection path. Because a Tax Court appeal of the reassessment generally depends on a valid objection and CRA’s resulting confirmation, variation, or reassessment, the corporation cannot use a direct appeal to revive the expired objection rights.

• A late portal upload does not become valid merely because CRA had not previously responded to it.
• CRA’s refusal to accept an out-of-time upload is not the same as confirming a valid objection on the merits.
• The extension period runs from the missed objection deadline supplied in the facts, not from management’s discovery of the error.

The corporation missed both the objection deadline and the last day to seek an objection extension, so there is no valid objection path to support a Tax Court appeal on the reassessment.

Question 4

Topic: Assessments and Appeals

Marika Design Inc. is a Canadian-resident CCPC with a December 31 year end. CRA issued a notice of reassessment dated April 28, 2026 for the 2024 taxation year, disallowing $96,000 of management fees paid to a corporation owned by the shareholder-manager’s sister. CRA’s letter says the fees were not sufficiently supported and may not be reasonable.

File facts:

• For this corporation, the notice of objection deadline was July 27, 2026.
• Today is August 12, 2026.
• A corporate taxpayer that misses the objection deadline may apply to CRA for an extension within one year after the missed deadline and should explain the delay and the grounds for objection.
• Marika’s board emailed its former CPA on June 20, 2026 instructing her to object. A draft objection dated July 18, 2026 is in the file, but it was never filed.
• Available support includes the management agreement, invoices, payment records, project emails, and customer onboarding reports.
• Detailed timesheets from the sister’s corporation will not be available for another five weeks.
• Marika wants to preserve its rights but does not want to incur Tax Court costs unless necessary.

Which procedural response should Marika’s new CPA recommend now?

• A. Wait until the timesheets are received, then decide whether to file an objection or proceed directly to Tax Court.
• B. Apply to CRA immediately for an extension to file the notice of objection, include the reasons for the missed deadline and the available grounds and support, and advise that additional timesheets will follow.
• C. File only a notice of objection today and treat it as valid because it is still within one year of the reassessment date.
• D. File a Tax Court appeal immediately because the dispute concerns the reasonableness of a related-party management fee.

Best answer: B

What this tests: Assessments and Appeals

Explanation: When a corporate objection deadline has already expired, the immediate procedural issue is preserving objection rights through an extension request. The one-year period does not automatically make a late objection valid; it provides a window to ask CRA to extend the time. Marika has useful timing evidence: the board instructed the former CPA to object before the deadline, and a draft objection existed before the deadline. That supports a timely intention to dispute the reassessment. The missing timesheets are relevant evidence, but waiting for them would add delay without improving Marika’s procedural position. The CPA should file the extension package promptly, clearly identify the reassessment issues, attach available support, and supplement the file when the timesheets are received. A Tax Court appeal is generally not the first step where no valid objection has been accepted or decided.

• A late notice of objection alone ignores that the original deadline has expired; an extension request is needed.
• Waiting for perfect evidence creates avoidable procedural risk when enough support exists to state the grounds now.
• Going directly to Tax Court is premature because Marika first needs a valid objection process or a relevant CRA decision on extension or objection rights.

The objection deadline has passed, but Marika is within the extension period and has evidence of a timely intention to object plus enough support to state its grounds now.

Question 5

Topic: Assessments and Appeals

Reena operates a sole proprietorship and received a notice of reassessment adding $74,000 to her business income. The CRA auditor used a bank-deposit analysis and treated deposits that did not match sales invoices as unreported revenue. Reena is within the objection period and asks what support should be submitted with the notice of objection.

Your review found the following:

• $25,000 was advanced from a personal bank loan. The loan agreement and matching bank statements are available.
• $14,000 was transferred from Reena’s personal savings account. The source account statement and matching deposit are available.
• $18,000 relates to customer deposits that were recorded in the sales ledger and included in the gross revenue reported on Reena’s return.
• $7,000 was a repayment from Reena’s brother of a personal loan made in the prior year. The original transfer and repayment e-transfer message are available.
• $10,000 of cash deposits is described by Reena as proceeds from selling household furniture, but she has no ads, receipts, buyer information, or other support, and the deposits occurred during her busy season.

Which response should be included in the objection package to best support Reena’s position without overstating the facts?

• A. Argue that all non-invoice deposits were personal because Reena says they were not from customers.
• B. Concede the full $74,000 because deposits that do not match invoices should be treated as unreported business revenue.
• C. Submit a deposit-by-deposit reconciliation requesting removal of the $64,000 supported by tracing documents or amounts already reported, and address the unsupported $10,000 separately without asserting it is proven non-business income.
• D. Request removal of the full $74,000 because the CRA has not proven that each deposit was a business sale.

Best answer: C

What this tests: Assessments and Appeals

Explanation: In an objection to a bank-deposit reassessment, the strongest support is a clear reconciliation that ties each disputed deposit to documentary evidence. Loan proceeds, transfers from personal savings, repayments of personal loans, and amounts already included in reported revenue can support reducing the income addition when the tracing is credible. The unsupported cash deposits are different. Reena’s explanation may be true, but without receipts, buyer information, or other corroboration, asserting that the $10,000 is proven non-business income would overstate the evidence. A balanced objection should request relief for the supported amounts and identify the weaker item separately, either as requiring more support or as an unresolved amount.

• A full deletion request ignores the taxpayer’s need to support the factual basis for removing the deposits.
• Full concession is too conservative because several deposits have documents showing they are not additional unreported revenue.
• Relying only on Reena’s statement is weak support and overstates the evidence for the cash deposits.

This limits the objection support to amounts backed by records while preserving the taxpayer’s position on the unresolved deposits.

Question 6

Topic: Assessments and Appeals

Your firm is advising Larch Components Ltd., a Canadian-controlled private corporation. CRA reassessed Larch’s 2023 corporate return and denied a $34,000 deduction for “market access consulting” paid to a corporation owned by the spouse of Larch’s controlling shareholder.

The file contains a generic invoice, proof of payment, and one email introducing a potential customer. There is no written agreement, time record, work product, or board approval before payment. No customer revenue resulted from the introduction. A draft technical memo notes that a related-party payment is not automatically non-deductible and that some business purpose can be argued, but reasonableness and support are weak.

Amounts and objectives:

• Corporate tax reassessed: $9,010
• Arrears interest: $1,200
• Penalties: none
• Estimated professional fees: $7,000 for an objection; $25,000 more if the matter reaches Tax Court
• Client instruction: proceed only if the chance of success is more than 50% and expected net recovery exceeds $10,000
• Client constraint: Larch is preparing for a sale and wants to avoid public litigation over related-party governance matters

The notice of objection deadline has not expired. What should the senior recommend?

• A. File a notice of objection to preserve all rights, because the expense has a technically arguable business-purpose basis.
• B. Accept the tax reassessment but request cancellation of the arrears interest, because no gross negligence penalty was assessed.
• C. Recommend not pursuing an objection unless new contemporaneous support is found; pay the reassessment and improve related-party expense documentation.
• D. Appeal directly to Tax Court, because an independent court is more likely than CRA Appeals to accept the business-purpose argument.

Best answer: C

What this tests: Assessments and Appeals

Explanation: A tax position can be technically arguable but still not worth pursuing. The decision should consider the strength of evidence, amount at stake, professional fees, probability of success, confidentiality, public disclosure risk, and the taxpayer’s stated objectives. Here, the maximum recovery is about $10,210 before fees, while the objection alone is expected to cost $7,000. The support is weak for a related-party payment, and the client requires both a better-than-50% chance of success and expected net recovery above $10,000. Escalating to Tax Court would add substantial cost and create the public litigation risk the client wants to avoid during a sale process. Without new evidence, the prudent advice is to not pursue the objection and to improve documentation controls for future related-party expenses.

• Preserving rights is not enough when the expected net benefit, evidence, and taxpayer appetite do not support proceeding.
• Going directly to Tax Court ignores the normal objection process and conflicts with the client’s cost and public-disclosure constraints.
• Interest generally follows the reassessed tax unless separate taxpayer-relief grounds exist; the absence of a penalty does not justify cancelling interest.

The position is arguable, but the weak evidence, limited recovery, estimated fees, and disclosure concerns do not meet the client’s stated criteria for proceeding.

Question 7

Topic: Assessments and Appeals

A CPA is advising Maple Fixtures Ltd., a resident CCPC. CRA issued a notice of reassessment dated March 1 disallowing $85,000 of SR&ED investment tax credits and assessing interest. The reassessment states that CRA considers the project documentation insufficient.

Today is May 20. The reassessment package states that Maple Fixtures has 90 days from the date of the notice of reassessment to file a notice of objection. The controller says an informal CRA reviewer has agreed to “look at the file again” if the company emails additional project logs, payroll records, and engineer notes. Those records exist, but they have not yet been organized. The controller wants to avoid unnecessary professional fees, but the company strongly disagrees with the reassessment and does not want to lose its appeal rights.

What should the CPA recommend as the next course of action?

• A. Prepare a Tax Court appeal immediately because CRA has already issued a reassessment.
• B. Send the documents to the informal CRA reviewer first and wait for CRA’s response before taking any formal action.
• C. File a notice of objection before the 90-day deadline and include the available support while continuing to organize the remaining evidence.
• D. Gather all project records before filing anything, even if the 90-day deadline is missed.

Best answer: C

What this tests: Assessments and Appeals

Explanation: Once a notice of reassessment has been issued, the taxpayer must protect its statutory objection rights within the applicable deadline. Informal discussions with CRA can be useful, and better evidence may help resolve the issue, but they do not replace a notice of objection or extend the deadline. Maple Fixtures has a live reassessment, a stated 90-day objection period, only a short time remaining, and a clear disagreement with CRA’s conclusion. The risk-aware recommendation is to file the objection on time using the best support currently available, then continue organizing and submitting additional evidence as part of the objection process. This balances cost control with preservation of rights.

• Relying only on an informal CRA review is risky because the statutory objection deadline continues to run.
• Waiting until every record is organized may improve the package, but missing the deadline could forfeit objection rights.
• A Tax Court appeal is generally premature before the objection process has been properly initiated or otherwise reached the appeal stage.

A timely objection preserves Maple Fixtures’ rights because an informal CRA review does not stop the objection deadline from expiring.

Question 8

Topic: Assessments and Appeals

Greenpoint Engineering Ltd., a Canadian-controlled private corporation, asked your firm for help after a CRA review of its 2024 T2 return. The controller forwarded the following items:

• A CRA proposal letter dated April 12, 2026, stating that CRA proposed to disallow $90,000 of shareholder travel expenses and requesting support by May 3, 2026.
• A corporate bank statement showing a $24,500 payment to CRA on May 15, 2026.
• A statement of account printed July 2, 2026, showing reassessment processed May 31, 2026 and a nil balance.

No Notice of Reassessment or auditor’s final adjustment schedule was provided. The controller wants you to draft a Notice of Objection immediately. Which additional information is most important before deciding whether and how to object?

• A. A copy of the Notice of Reassessment, including the mailing date, taxation year, reassessed amounts, and CRA’s final adjustment reasons.
• B. Copies of the disputed travel receipts and itineraries only, because the proposal letter already establishes the basis and timing for an objection.
• C. A management representation that the travel was business-related, because CRA must accept an objection if the taxpayer disputes the proposal.
• D. Confirmation that CRA’s balance is nil, because payment of the reassessed amount determines whether an objection can be filed.

Best answer: A

What this tests: Assessments and Appeals

Explanation: A proposal letter, statement of account, and payment record do not provide enough information to prepare a defensible objection. The CPA should obtain the actual Notice of Reassessment or equivalent transcript and CRA’s final adjustment details. This confirms that CRA has issued an appealable reassessment, identifies the taxation year and amounts under dispute, and provides the date needed to assess objection timing. After that, the taxpayer will still need evidence supporting the disputed travel expenses, such as receipts, itineraries, business purpose documentation, and approval records. However, the first gap is procedural and issue identification: without the reassessment and final reasons, the CPA cannot reliably determine the proper response, deadline, or grounds of objection.

• Travel receipts and itineraries are important support, but they do not confirm the reassessment date, final amounts, or objection deadline.
• A nil CRA balance only shows payment or offset; it does not remove the right to object or prove the issue is resolved.
• Management’s statement may help explain the facts, but an objection needs the actual reassessment details and objective support.

The actual reassessment and final adjustment details are needed to confirm that an appealable assessment exists, identify the issues, and determine the objection timing.

Question 9

Topic: Assessments and Appeals

A CPA is preparing a response to a CRA proposal letter for a Canadian-controlled private corporation. CRA proposes to deny a $90,000 management fee deducted by the corporation in its 2025 taxation year.

Relevant facts:

• The fee was paid to the sole proprietorship of the spouse of the corporation’s 100% shareholder.
• There is no written contract. Monthly invoices state only administrative support - $7,500.
• Bank records show 12 monthly payments, and the spouse reported the $90,000 as business income on her T1 return.
• Emails, payroll records, and accounting system logs show that the spouse handled payroll, customer invoicing, collections, and vendor follow-up throughout the year.
• A former unrelated full-time office manager was paid $62,000 plus $8,000 of benefits before leaving the business. The spouse worked about 20 to 25 hours per week remotely.
• The shareholder says the fee was partly intended to “move income into the family” and wants the response to say the spouse also managed sales strategy, but the available records show the shareholder handled sales.

Which response strategy best protects the taxpayer’s position without overstating the case?

• A. Recommend conceding the full denial because the lack of a written agreement prevents any deduction for amounts paid to a related person.
• B. Provide the service evidence, payment records, and income reporting, acknowledge the related-party and documentation weaknesses, and support a deduction only to the extent the fee is reasonable for the administrative work performed.
• C. State that CRA cannot challenge the amount because private corporations may choose their own compensation and management-fee arrangements.
• D. Argue that the entire fee must be deductible because the spouse reported the $90,000 as income, eliminating any overall tax loss to the fisc.

Best answer: B

What this tests: Assessments and Appeals

Explanation: A response to CRA should be accurate, evidence-based, and measured. The taxpayer has support that real services were provided and paid for, so conceding the entire deduction would be too weak. However, the relationship, vague invoices, lack of contract, and shareholder’s income-splitting comment create risk. The stronger professional approach is to provide contemporaneous evidence of the actual administrative work, bank payments, and income reporting, while acknowledging that reasonableness remains an issue for a non-arm’s length fee. The response should not claim sales or strategy work that is not supported. It may be appropriate to defend a reasonable amount based on comparable compensation and accept or negotiate an adjustment for any excess.

• Income reporting by the spouse supports that payments occurred, but it does not prove the corporation’s deduction was reasonable or incurred to earn income.
• Business judgment does not prevent CRA from reviewing reasonableness and deductibility, especially for non-arm’s length payments.
• The absence of a written agreement weakens support, but other evidence can still substantiate actual services and a reasonable deduction.

The response supports the valid business-service portion while avoiding unsupported claims about arm’s-length pricing or unproven sales work.

Question 10

Topic: Assessments and Appeals

A CPA is reviewing a draft email to be sent to Arjun, a sole proprietor who received a CRA proposal letter. Arjun deducted $18,400 of vehicle and travel expenses. CRA states that invoices and credit card slips were provided, but there is no mileage log, no business-purpose notes, and no support connecting the Vancouver airfare and hotel costs to client work. CRA proposes to deny 65% of the vehicle expenses and all Vancouver travel unless a response is provided within 30 days.

Draft email:

CRA is asking about your vehicle and travel claim. Please send any receipts not already sent. If CRA reassesses, we can file a notice of objection, so there is no need to worry at this stage. I will call CRA after I receive your receipts.

Which review comment best evaluates the draft email?

• A. The email is too detailed because discussing CRA’s evidentiary concerns before a reassessment may unnecessarily alarm Arjun.
• B. The email gives the wrong next step because Arjun should file a notice of objection immediately against the proposal letter.
• C. The email is incomplete because it does not explain that CRA needs business-use and business-purpose support, understates the reassessment risk, and should tell Arjun to gather specific records for a response before the 30-day deadline.
• D. The email is adequate because receipts are the main support for deductible expenses, and a notice of objection will protect Arjun if CRA disagrees.

Best answer: C

What this tests: Assessments and Appeals

Explanation: A client communication responding to CRA should be clear about four points: the tax issue, the support required, the risk, and the next step. Here, the issue is not simply missing receipts. CRA is questioning whether the vehicle and travel costs were incurred for business purposes and, for vehicle costs, the business-use percentage. The draft email does not tell Arjun to provide mileage logs, calendars, client meeting notes, trip purpose records, or other evidence connecting the expenses to business income. It also minimizes the risk, even though CRA has already proposed specific denials if support is not provided. The immediate next step is to assemble targeted support and respond within the stated proposal deadline, not to rely on a later objection as the main strategy.

• Treating receipts as sufficient ignores CRA’s concern about business purpose and business-use allocation.
• Avoiding risk discussion may leave the taxpayer unprepared for a reassessment and related interest exposure.
• Filing an objection immediately is premature because CRA has issued a proposal letter, not a reassessment.

The draft identifies the general area but fails to communicate the evidence gap, likely denial risk, and immediate response step clearly enough.

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