If you don’t file your tax returns the Canada Revenue Agency (“CRA”) can estimate your income and issue a notional tax assessment against you called an Arbitrary Assessment. There are several methods the CRA can use to estimate your income. These include information from your previously filed returns, information slips from third parties such as your bank or employer, and tips from people who have an axe to grind with you. In almost all cases, the amount owing on the Arbitrary Assessment is higher than what you actually owe.
After the CRA has issued an Arbitrary Assessment, they will begin collection action against you if the amount is not paid within 90 days. So what can you do if you receive an Arbitrary Assessment? You basically have three options:
1) You can file proper tax returns with the actual amounts of income and ask CRA to process those returns. Often the CRA issues an Arbitrary Assessment just to get the taxpayer’s attention and force you to file your tax returns. I have had many Arbitrary Assessments reduced or vacated using this method.
2) You can file a Notice of Objection with the Appeals Division of the CRA. In most cases, this will stop any collection actions by the CRA while the appeal is ongoing. An exception to this is GST/ HST Arbitrary Assessments. Filing a Notice of Objection will not stop collection actions for GST / HST assessments.
3) If you don’t dispute the amount of the Arbitrary Assessment, you can simply pay it and move on.
If you receive an Arbitrary Assessment from the CRA, it is important that you contact a tax professional BEFORE the CRA begins collection action to discuss which option is best for your situation.
For a free 30 minute telephone consultation with Tax Attorney Norm MacDonald click here