Illustrative example based on the kinds of matters we handle — not a specific client engagement; outcomes depend on the facts.
The situation
Picture a self-employed tradesperson — a sole proprietor who invoices clients directly, with no payroll department withholding tax on their behalf. For a few years the returns went in on time. Then one difficult year — an illness, a relationship breakdown, a stretch of disorganized bookkeeping — meant a return did not get filed. The next year, behind and embarrassed, they put it off again. Before long several years of personal returns were outstanding.
The avoidance ended when the mail arrived. The CRA had issued an arbitrary assessment — also called a notional assessment — under its authority to assess tax even where no return has been filed. The agency estimated income from the slips it had on hand, with no deductions and no business expenses, and produced a balance owing that was far larger than the person believed they actually owed, stacked with late-filing penalties and compounding interest. A collections letter followed shortly after.
The challenge
An arbitrary assessment is a deliberately blunt instrument. Because it is built from gross receipts with none of the offsetting costs a real return would claim, the assessed figure is almost always inflated for a self-employed taxpayer. But it is not harmless — once issued, it is a legally valid assessment the CRA can act on and collect, even though it does not reflect reality.
- The clock had already started. A notional assessment can trigger the objection deadline and open the door to collections action — a wage requirement to pay, a frozen account, or a lien — before the real numbers are ever established.
- The records were a mess. Years of invoices, receipts, and bank statements were scattered or incomplete, and reconstructing accurate business income for each year was the heart of the work.
- Penalties and interest had grown. Repeated late filing attracts escalating late-filing penalties, and interest compounds daily — so the longer nothing was done, the worse the headline number looked.
How we approached it
The first conversation was about being straight: this was fixable, and the route was to replace the CRA's guess with properly filed returns. Reassurance came first, then a written plan before any retainer.
- Stabilized the collections risk early. We opened a line of communication with the CRA so the file was treated as an active catch-up rather than letting an inflated notional balance drive a garnishment. Our overview of CRA collections and garnishment explains the levers that can buy time.
- Reconstructed the books, year by year. Working with the client and an accountant, we rebuilt income and legitimate business expenses for each outstanding year — the deductions the arbitrary assessment ignored entirely. Our guide to unfiled tax returns in Canada walks through that process in general terms.
- Filed the real returns to displace the notional one. Filing an accurate return is the normal way to have an arbitrary assessment reassessed down to the correct figure — see our explainer on arbitrary and notional assessments.
- Addressed penalties and interest separately. Once the underlying tax was corrected, we looked at whether the circumstances behind the delay could support a relief request to cancel or reduce penalties and interest, as discussed in our note on cancelling interest and penalties.
Throughout, we dealt with the CRA directly so the client could keep running their business instead of dreading the mailbox.
The outcome
In a matter like this, the meaningful shift is from a number the CRA invented to a number the taxpayer can stand behind. Once accurate returns were filed and accepted, the arbitrary assessment was reassessed to reflect actual income net of legitimate expenses — and for a self-employed person ignored in the original estimate, that correction alone can reduce the assessed tax substantially. What can follow from there — never assured — is that the inflated balance is replaced by the real liability, late-filing penalties are reduced or cancelled where the facts support relief, and a manageable payment arrangement halts the threat of garnishment. The taxpayer still owed the tax genuinely due — filing corrects a guess, it does not erase a real debt — but the difference between the notional figure and the corrected one was the difference between panic and a plan.
The takeaway
An arbitrary assessment is the CRA's way of forcing the issue — and ignoring it invites collections on a number that is almost certainly too high. A few points generalize from files like this:
- A notional assessment is a guess, but a legally enforceable one — the answer is to file accurate returns, not to hope it lapses.
- For the self-employed, the missing piece is usually deductions and expenses the estimate never accounted for.
- Penalties and interest can sometimes be reduced on relief grounds, but that is a separate request from correcting the tax itself.
If you are behind on returns or staring at an arbitrary assessment, the right move is to get organized and get advice early. The path depends on your facts, results vary, and nothing here is a prediction of any particular outcome.
Illustrative example based on the kinds of matters we handle — not a specific client engagement; outcomes depend on the facts. This is general information, not legal advice; please consult a lawyer about your specific situation.