A notional assessment, sometimes called an arbitrary assessment, is a tax bill CRA issues for a year you didn’t file. CRA estimates your income, calculates tax on that estimate, and adds penalties and interest. It’s enforceable, it’s usually too high, and the way to replace it is to file the real return.
Why did CRA assess income you never reported?
Subsection 152(7) of the Income Tax Act says CRA isn’t bound by a return, and can assess tax even if no return has been filed. When a corporation stops filing, CRA can use what it already knows, such as prior-year income, T4A and T5018 slips from payers, GST/HST returns and industry data, to estimate income and assess tax on it.
Why is a notional assessment usually too high?
CRA can see some of what came in, but little of what went out. A notional assessment generally doesn’t reflect your expenses, capital cost allowance or deductions, so the estimated profit, and the tax on it, is typically well above what an actual return would show. Penalties and interest are then calculated on that inflated figure.
Do you have to pay it?
A notional assessment is a real assessment, so the balance is treated as a debt to CRA until it’s changed. Collections can pursue it, including by holding back refunds and issuing requirements to pay to banks or customers. That’s why the fix shouldn’t wait.
How do you replace a notional assessment?
- Rebuild the books for the year, from bank and card statements and supplier records.
- File the actual T2 return with financial statements and support for the expenses.
- Have CRA reassess based on the real figures. Filing a notice of objection within 90 days of the notice of assessment keeps the formal dispute route open.
How long do you have?
Timing matters in two ways. A notice of objection is due 90 days after the date of the notice of assessment, and there is a limited opportunity to ask for an extension within a year after that deadline. Separately, CRA’s normal reassessment period runs from the date of the original assessment: three years for a Canadian-controlled private corporation, four for most other corporations. Leave a notional assessment too long and it can become very difficult to change.
The practical rule: if you’ve received a notional assessment, start rebuilding that year now, and get advice on the objection deadline straight away.
What if several years are affected?
It’s common for CRA to issue notional assessments for some years while others simply sit unfiled. Each year still has to be rebuilt and filed in order, oldest first, because every year’s closing balances feed the next. Here’s the full catch-up process.
Sources: Income Tax Act, section 152; section 165 (objections). General information, not advice for your specific situation.
