Understanding CRA Arbitrary Assessments

What happens if you do not file tax returns? Many taxpayers believe that not filing is the safest route to take if they do not have the money to cover the amount of taxes owing.

If you fail to submit filings to CRA when required, CRA may do it for you and estimate your taxes owing. These Arbitrary / Notional tax assessments are often too high, but they are nonetheless binding unless successfully challenged by the taxpayer.

What are Arbitrary / Notional Assessments?

Subsection 152(7) the Income Tax Act and subsection 299(1) of the Excise Tax Act provide the statutory authority for CRA to issue arbitrary tax assessments.

The CRA will estimate your tax liability using a variety of available information, including income reported in prior years or information obtained through third parties and often not allowing deductions or credits to which the taxpayer would otherwise be entitled.

 This means that Arbitrary Assessments often create huge tax liabilities for taxpayers, over and above what they would actually owe if they completed and filed their own taxes.

What Can Taxpayers Do?

If you receive an Arbitrary Assessment, you have a number of options open to you.

  1. You may file a Notice of Objection with CRA, but this will not halt collections actions.
  2. You may choose to file a return yourself in an attempt to reduce your tax bill. In most cases, this will usually trigger CRA audit to ensure that your tax return is filed correctly.
  3. Finally, you may choose to simply pay the Arbitrary Assessment.