An unfiled repair business gets taxed on every deposit that hit the bank

The situation

The number on the notice was just under fourteen thousand dollars in tax the government said Dustin owed for two years he had not filed, plus penalties and interest still adding up on top of that. Dustin worked full time in a warehouse in Fergus and ran a small side business doing appliance and small equipment repairs, taking cash and e-transfer payments from a rotating list of customers he found mostly through word of mouth. He had never filed a return for the business income, partly out of avoidance and partly because he genuinely was not sure how to calculate what he owed once materials and travel were factored in against what he actually kept.

After two years of silence, the government issued what is called an arbitrary assessment, estimating his income based on the deposits that had moved through his bank account rather than on any return he had filed. The estimate treated every dollar deposited as income, with no deduction for parts, tools, gas, or the portion of the deposits that were simply repayments from friends or transfers between his own accounts, and no allowance at all for the fact that repair work carries real costs before a dollar of profit is left over.

Dustin's actual profit from the repair work was modest. He bought parts at retail prices with no supplier discount, drove significant distances for some jobs across the surrounding area, and often underpriced his labour relative to what he was actually doing, sometimes charging less than a shop rate simply to keep customers coming back. None of that showed up in an assessment built purely from deposit totals, which by its nature cannot see costs it was never given any documentation about.

He came to us after a collections notice followed close behind the assessment, worried less about the legal process itself and more about the plain fact that his bank account could be frozen or garnished before he had any real chance to correct the numbers behind it. He had also started avoiding his phone, unsure whether the next call would be another collections notice or something worse, and the stress had begun to affect how he showed up at his warehouse job as well, since he was losing sleep over a debt he did not fully understand and could not yet dispute with any real numbers of his own.

The complication

The collections side of the file moved faster than Dustin expected. Once the assessment issued, the estimated amount became a legally valid debt whether or not the figures behind it were right, and interest started running on it right away. For income tax, the CRA generally has to wait about three months from the date the notice was sent before taking legal collection steps like garnishment, but that window is a pause on enforcement, not on the debt itself, and filing the real return is what actually displaces the estimate. A garnishment notice arrived at Dustin's bank a little under three months after the assessment issued, before we had finished reconstructing the real numbers behind it.

The imbalance in the file was stark, and it was the kind of imbalance Dustin felt keenly every time the phone rang. He was a single self-employed tradesperson with no accountant and no reserve of cash to draw on, while the collections process itself does not pause for a small taxpayer to catch up on paperwork. That asymmetry was not hidden or subtle; the collections officer working the file, a man named Hyun-woo, was direct on every call that payment arrangements or a lump sum would stop further action, and that the estimate would stand exactly as issued until Dustin filed something that formally replaced it. Hyun-woo was not being unreasonable by the standards of his job, but he also had no obligation to slow down while Dustin figured out how to respond, and he said as much plainly.

Dustin had kept receipts for parts and some fuel purchases in a shoebox, but no organized bookkeeping, no mileage log, and no separate business bank account, since all of his deposits, personal and business, ran through the same account for years. That made it harder to isolate which deposits were actually repair income at all, since some of what the estimate counted as revenue was simply Dustin's own paycheque deposits and occasional transfers from a family member covering shared household bills that had nothing to do with the business.

The pressure of the garnishment meant we had to move on two tracks at once: getting real returns filed to correct the underlying numbers, and separately asking Hyun-woo's office to hold off enforcement while that correction was genuinely in progress, which is not automatic and depends heavily on showing the file is actually moving rather than simply stalling for time. Hyun-woo made clear he had seen files where a taxpayer promised returns were coming and then nothing arrived for months, and he was not willing to extend that same patience without something concrete to show for it.

What we did

1. Retained a bookkeeper to reconstruct two years of business activity. We brought in Seo-yeon, a bookkeeper experienced with small self-employed files, because sorting personal deposits from repair income across two years of bank statements needed a level of detailed reconciliation that would have taken us far longer working from scratch, and the credibility of a properly prepared set of books mattered to how the file would ultimately be received by both the assessing side and collections.
2. Separated business deposits from personal transfers and paycheque income. Working line by line through the statements with Seo-yeon, we flagged which deposits matched known repair customers, which were Dustin's regular warehouse pay, and which were family transfers for shared bills, since the original estimate had treated every one of those as taxable revenue with no distinction. That reclassification cut the taxable deposit total substantially before a single expense was claimed, and it mattered because no expense claim can fix a starting revenue figure that was inflated to begin with.
3. Gathered and totalled the available expense documentation. We organized the receipts Dustin had kept for parts and supplies in his shoebox, estimated a reasonable mileage figure from the addresses he could recall visiting for jobs over the two years, and built a conservative expense claim that we could support fully if questioned, rather than pushing for the highest possible deduction and inviting further scrutiny.
4. Prepared and filed both years of returns as soon as the numbers were solid. Filing the actual returns is what triggers the replacement of an arbitrary estimate with real, documented figures, since an estimate stays on record as the taxpayer's confirmed debt until something formally replaces it. So getting complete and defensible returns filed as quickly as the reconstruction allowed was the single most important step in the entire file, and it was the step that finally gave collections a genuine reason to reconsider the number they were chasing.
5. Contacted Hyun-woo directly to request a hold pending reassessment. We explained that returns had now been filed and asked for enforcement to pause while the corrected numbers were processed, which is a request collections can grant but is not obligated to, and which depends heavily on demonstrating the filed returns are credible, complete, and not simply a delay tactic dressed up as progress.
6. Followed up in writing to confirm the hold and keep it on record. Verbal assurances from a collections officer can be forgotten or reassigned if the file changes hands or gets picked up by someone new, so we sent written confirmation of what Hyun-woo had agreed to, giving Dustin something concrete to point to if enforcement activity resumed unexpectedly while the reassessment was still pending.
7. Negotiated a payment arrangement for the remaining balance. Even with the corrected numbers, Dustin still owed tax on his real profit plus late-filing penalties and accumulated interest, so we worked out a monthly payment plan sized realistically to what he could actually afford, rather than leaving him exposed to another garnishment the moment the hold lifted. We also reviewed the arrangement with Dustin against his ordinary living expenses to confirm the monthly amount was genuinely sustainable, rather than something he might miss once or twice and risk losing the whole arrangement over.

The outcome

Once the returns were processed, the reassessed amount dropped from just under fourteen thousand dollars to a little over four thousand, reflecting Dustin's actual modest profit from the repair work rather than the full value of every deposit that had passed through his account over two years. The garnishment was lifted once Hyun-woo's office confirmed the returns were filed and a payment arrangement was in place, and it did not resume once the corrected balance was set.

Dustin still owed real money. The corrected assessment reflected genuine unreported income and late-filing penalties that did not disappear simply because the original estimate had been wrong in its method. He is paying that balance down under the arrangement we negotiated with Hyun-woo, and the penalties in particular will not be reduced further without a separate request to have them waived, one that has its own uncertain chances and was not something Dustin wanted to pursue while still catching up financially.

The bigger and more lasting change was in how Dustin runs the business now. He opened a separate account for repair income, keeps a simple mileage and expense log after every job, and files each year on time without waiting to be prompted. The lesson cost him real money and two years of stress he could have avoided entirely, but the damage was contained to what he actually owed once the numbers were corrected, rather than the far larger and inflated figure the original arbitrary assessment had produced. Hyun-woo's office confirmed the account was in good standing once the first several payments came through on schedule, closing the collections side of the file for good and giving Dustin a clear end date by which the whole balance, penalties included, would finally be paid off.

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