I didn't file a tax return and CRA issued an assessment — what can I do?
When a taxpayer fails to file a return, CRA is permitted under the Income Tax Act to issue an "arbitrary assessment" — its own estimate of the tax you owe, based on available information such as T4s, T5s, and other third-party slips it has on file. CRA does not need your cooperation to issue this assessment; it will estimate your income and assess accordingly.
Arbitrary assessments often significantly overstate what you actually owe because CRA does not have access to your deductions, credits, or expenses. CRA may also add a failure-to-file penalty and late-filing interest on top of the assessed amount.
The most effective response is to file the overdue return as soon as possible. Filing the return effectively supersedes the arbitrary assessment and replaces it with an assessment based on your actual reported income and deductions. If you owe less than CRA estimated, the assessment will be corrected. If you have multiple unfiled years, prioritizing them chronologically and filing all outstanding returns is important — CRA's voluntary disclosures process may also be relevant if the returns are significantly late.
Key takeaways
- CRA can issue an arbitrary assessment estimating your income when you don't file a return.
- Arbitrary assessments often overstate taxes owed because CRA lacks your deduction and expense information.
- Filing the overdue return replaces the arbitrary assessment with one based on your actual income.
- File overdue returns promptly; multiple unfiled years may benefit from the voluntary disclosures process.