Arbitrary Assessment

An arbitrary assessment — also called a notional assessment — is an assessment the Canada Revenue Agency issues for a tax year in which the taxpayer has not filed a return. Subsection 152(7) of the Income Tax Act allows the Minister to assess tax without a return by estimating the taxpayer's income, generally from the information slips (T4, T5, T3, T5008 and similar) that third parties have filed against the taxpayer's name. Because those slips report gross amounts, an arbitrary assessment usually omits the deductions, credits, and expenses the taxpayer would have claimed, producing a tax figure higher than the amount actually owed. Under subsection 152(8) the assessment is presumed valid and binding, and it remains a collectible debt until the taxpayer displaces it — most often by filing the actual return for the year, after which the CRA reassesses on the correct figures.