When the Canada Revenue Agency (“CRA”) processes a tax return, they produce a document detailing the results known as a Notice of Assessment. If you modify your filings, or if the CRA makes changes on their own, they will then issue a Notice of Reassessment explaining what changes were made, and why.
But 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. However, this creates a large issue because the CRA will charge you penalties for not filing your returns, and then interest on the penalties. See here for the possible removal of penalties and interest.
The CRA can even take it one step further by issuing Arbitrary Assessments or Notional Assessments.
What are Arbitrary / Notional Assessments?
If you do not file your taxes, the CRA can, and will create tax returns for you, and they will process those returns. The CRA will estimate your income based on any number of factors. Your return may be based off of slips received by CRA, or off of previous returns filed. A central feature of Arbitrary Assessments is that the numbers are usually much higher than your actual income. 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.
Once these made up tax returns are processed by CRA, taxpayers receive Arbitrary or Notional Assessments indicating a balance owing. If taxpayers receive Arbitrary Assessments, the CRA will begin collections actions. CRA will not wait for taxpayers to file proper tax returns, and will want to collect on the balance owing from these Arbitrary Assessments.
What Can Taxpayers Do?
If you receive an Arbitrary Assessment, you have a number of options open to you. You may object to the assessment, but this will not halt collections actions in some instances. Taxpayers may choose to file proper tax returns, but should be aware this may lead to an audit. Finally, taxpayers may choose to simply pay the Arbitrary Assessment and move on with their lives.
If you have not filed your taxes, or have received an Arbitrary Assessment, time is of the essence. Give Rosen Kirshen Tax Law a call today to see what we can do for you!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.