What Happens if You Don’t File Taxes for Several Years in Canada?

If someone does not file their taxes for several years, the situation does not simply disappear. The Canada Revenue Agency receives income information from employers, banks, and other financial institutions, so they are usually aware that income was earned even if a tax return was never submitted.

When returns remain unfiled for too long, the CRA may issue what is known as an arbitrary assessment. This is essentially an estimate of the taxes they believe may be owed.

The problem with arbitrary assessments is that they usually assume income but do not include deductions or expenses. For example, a self-employed individual may have legitimate business expenses that reduce their taxable income. Those deductions will not be included in the CRA’s estimate.

Once proper tax returns are filed, the CRA typically replaces the estimated assessment with the correct calculation based on the actual financial information.

I often see situations where people were worried about a large balance shown on a CRA notice, only to discover that the amount was significantly reduced once the real tax returns were filed.

For anyone who has fallen behind on tax filings, preparing the correct returns is usually the first step toward resolving the issue and becoming compliant again.