CRA tax assessment is when the Canada Revenue Agency conducts a review of your income taxes. The most common form of CRA tax assessment is the Notice of Assessment that is sent once the CRA has conducted a preliminary review of your tax return. However, there are also other forms of assessment including what are known as “arbitrary assessments.”
These assessments are also known as “notional assessments.” What this means is that, if you have not filed your taxes on time, the CRA could decide to complete and file your return for you. Many people believe that, if you do not file your taxes, that the CRA will wait until you file and then charge you penalties and fines. This is not always true.
The CRA is able to choose to complete an arbitrary assessment in which the agency will estimate your income and the tax debt that you owe. It will then charge interest on this debt as required. As you can expect, the amount of tax debt that an arbitrary assessment says that you owe will likely not be as favourable to you as it would be if you completed your return yourself. The CRA will use previous income tax statements to complete your return and will not take steps to include expenses or deductions or attempt to give you any tax breaks.
In many cases, the amount owing listed by the CRA will be very high and additional charges, penalties and interest will be charged since the assessment was late. This can be incredibly costly. You could even be subject to CRA collection efforts such as wage garnishments.
What Can You Do if you Receive a Notional Assessment?
If you receive an arbitrary CRA tax assessment, your options are to pay the amount listed as owing or to appeal the assessment. You can also choose to file a return yourself at this point 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.
In addition, if the CRA does not have the information it needs in order to complete an arbitrary assessment, it can take you to court where the court can order that you complete the return and pay a court fine. If you ignore this court order, you could be subject to contempt of court charges.
As you can see, it is in your favour to complete your tax return and file it with the CRA on time. Even if your return is late or you do not have the money to pay your tax debt, it is always better to file as soon as possible than to wait for the CRA to complete a notional assessment.
If you have received such an assessment, it is important that you act quickly to resolve this situation. Please Contact Tax Solutions Canada today at 1-888-868-1400 for guidance and assistance from our ex-CRA tax professionals.