What Happens if the CRA Files Your Taxes for You?

If someone goes several years without filing their tax returns, the Canada Revenue Agency may eventually step in and issue an arbitrary assessment. This means the CRA estimates the amount of tax they believe is owed based on the income information they have on file.

The problem with these assessments is that they rarely reflect the taxpayer’s real financial situation. The CRA may know about income reported by employers or banks, but they usually do not know about deductions, expenses, or credits that could reduce the amount of tax owing.

Because of this, arbitrary assessments often show balances that are higher than they would be if proper tax returns were filed.

Once the correct tax returns are prepared and submitted, the CRA typically replaces those estimates with the actual calculations based on the information provided.

I’ve seen many situations where someone felt discouraged after receiving a large CRA estimate, only to find that the balance was significantly lower once the real tax returns were completed.

The important takeaway is that even if the CRA has issued an assessment, filing the proper returns can still correct the situation.