What is an arbitrary assessment?

The CRA has wide-reaching powers when it comes to assessing, reassessing and collecting tax debt. An arbitrary assessment is an assessment where the CRA can assess you if you haven't filed your tax returns. Get Farber Tax to help you dispute a CRA assessment.

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What is an arbitrary assessment?    

 

Many people think that if they do not file their tax returns, they will not have to pay taxes. They’re often shocked to find a Notice of Assessment from the CRA for taxation year where they forgot to file, often with a large tax debt owing as well. What has happened in this case is an arbitrary, or a notional assessment has been issued against them.

Canada has a self-reporting tax system. This means that the taxpayer will file their returns, disclosing their income, expenses, and claiming any deductions. The filing deadline for individuals is usually April 30. Upon receiving your tax return, the CRA reviews the amounts reported and claimed, may verify for accuracy, and will make any adjustments they feel are necessary. If there are any concerns, a taxpayer might be asked to send more supporting documentation or may get audited. Generally, the CRA will accept the returns, and issue the taxpayer a Notice of Assessment telling them how much they owe in tax.

However, if a taxpayer is far past the filing deadline, the CRA can take assessment action. Under subsection 152(7) of the Income Tax Act or subsection 299(1) of the Excise Tax Act, the CRA can issue an arbitrary assessment. This means that the CRA will guesstimate your income and expenses based on their own estimates and records.

With an arbitrary assessment, your tax debt owing to the CRA will necessarily be larger than the actual debt you owe, in order to convince you to file the returns, and will be comprised of three elements: the underlying tax debt based on the CRA’s arbitrary numbers; failure to file penalties; and accruing interest on those amounts.

 

How do I respond to an arbitrary assessment?

 

There are two main things that can be done to reverse an arbitrary assessment.

If you are within 90 days plus one calendar year of the Notice of Assessment, you can file a Notice of Objection against the arbitrary assessment. If it is an income tax issue, a Notice of Objection prevents the CRA from taking any enforcement or collection actions on your account until the dispute is dispensed with.

The second option is to just file your tax returns. Because the CRA will assess your returns with extra scrutiny, it is best to have the return prepared by an accountant. The CRA will then adjust your tax debt owing based on your tax return, and issue you a Notice of Reassessment.

If you have been arbitrarily assessed by the CRA and owe a large tax debt, we can help fix that. Please contact us today and we will help resolve your tax dispute with the CRA.

Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:

  • 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;
  • 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and
  • 3| Offer a complete solution to your tax problems, including ex-CRA professionals and tax lawyers from Farber Tax Law.