What is a Notional Assessment or a CRA Tax Assessment?

With the Canadian income tax deadline behind us, those who, for whatever reason, chose not to file this year (or any past year) may be thinking that it is too late and that there is no real urgency to file now. Many people don’t file their annual tax returns because they know that they will owe money that they do not have (so why tell on yourself?) or because they made income that they don’t want to report. Regardless of your situation, if you have failed to file your 2012 income tax return beware - Canada Revenue Agency (CRA) simply completes a notional assessment (CRA tax assessment) on those individuals who have not filed their returns. 

What is a notional assessment, commonly known as an involuntary CRA tax assessment? This is when you have not filed your tax returns and CRA arbitrarily completes a tax assessment on your behalf. This means that they will estimate (guess) your income and file your tax return for you. The CRA does not prepare the return in your best interests.  If you are notionally assessed as owing, your tax debt, along with interest and penalties, will be applied retroactively, and CRA will attempt, through all their various means, to collect the money from you.

If you are late filing your tax returns, how does CRA conduct an arbitrary or notional tax assessment? A prime example is your client being audited. Any payment to you will be found during the audit, and CRA may assess you as a result. If you work as a subcontractor, the contractor who pays you will file a tax slip indicating the income they paid you for the year (if you are not being paid in the name of a business). If a builder or homeowner pays you for a side job by cheque, and you don’t report that payment, the homeowner may claim it on their tax return. If CRA asks them for the receipt or invoice to support their expense the dots will then connect back to you.  CRA auditors are experts at looking for and connecting these dots.

Tax slips may have been filed by someone else or calls may have been made to the CRA Snitch Line, meaning the government often becomes aware of your unreported income and that leads to involuntary CRA tax assessments. It does not matter why you failed to report all of your income, whether because you were unaware that you were required to or because you were trying to buy time because you didn’t have the money to pay. The CRA Snitch Line is often used as a revenge or spite site for unreported income, a very common occurrence, especially with ex-spouses or ex-business partners. In both of these scenarios a CRA tax assessment could ensue, or worse, an audit or investigation could begin.

Once you have been notionally assessed, you need to (re-)file your returns voluntarily and right away. This may result in less debt owing. If you operate a business you may not be eligible to claim input tax credits for HST on tax years older than 4 years, so time is of the essence.  It is also a good idea to retain professional representation, especially if you feel that the CRA tax assessment is incorrect. It is never a good idea to try to negotiate with CRA directly, as they will attempt to obtain information from you which can be used against you in the future. 

If you have been sent a notional assessment it is important to act quickly rather than ignoring the involuntary CRA tax assessment. A tax professional that can negotiate on your behalf and help you navigate the entire process is a great way to keep yourself protected.

If you are dealing with a notional assessment (involuntary CRA tax assessment) and need help, please contact Tax Solutions Canada by calling 1-888-868-1400 or visit us online at www.taxsolutionscanada.com.