The CRA assessed me: what next?

“This is the Canada Revenue Agency (CRA) calling. We assessed your tax return(s) that you didn’t file, and you have a significant balance owing.”

Does this monologue sound familiar?

When you don’t file your tax returns, there is an expectation that the CRA will take some action to encourage you to meet your filing obligations. Under the non-filer program, the agency may enforce filing compliance under the Income Tax Act by issuing demands for returns, raising assessment under Subsection 152(7) of the Income Tax Act, field visits or in rare situations, prosecution.

Analyzing instances when the CRA raised an assessment against non-compliant tax debtors, we find that the agency most likely isn’t going to raise an assessment against someone that doesn’t owe taxes. That said, you still need to file your taxes even when you do not owe any balances.

When the CRA comes calling

What do you do when the CRA raises an assessment against you and tells you that you are owing a balance? Take these four steps:

1. Recognize that the assessment is based on information available to the CRA. They may not have your complete or up-to-date records.
2. Do not ignore the correspondence and calls you get from the agency (there is a “what is next” scenario if you ignore them). You legally owe them the amount they assessed.
3. Start pulling your tax information together because you could:
   1. File a tax return for the year or years that the CRA raised the assessment against
   2. File a notice of objection – be aware there are time limits of the following two dates, whichever is later:
      1. One year after the date of the return’s filing deadline; or
      2. 90 days after the day the notice of assessment was sent

      (For more information on filing a notice of object see the CRA Publication)

4. Call the CRA and see about making payment arrangements

If you’re not able to make payment arrangements to pay the tax debt in full, that is satisfactory to both you and the agency, you might want to explore alternative options. The CRA isn’t known for making deals directly with individuals. 

What alternative options look like

Consumer Proposal

The Consumer Proposal provisions of the Bankruptcy and Insolvency Act allows you to make a settlement offer to your unsecured creditors, including the CRA.

Bankruptcy

The bankruptcy provisions of the Bankruptcy and Insolvency Act encompasses debts to unsecured creditors, such as the CRA.

What you should know about proposals and bankruptcy

Consumer Proposal

In making a settlement offer, the creditors can come back with a counteroffer, but the goal is to get a process in place that you can afford.

Bankruptcy

When the personal tax debt is more than $200,000, it may prevent you from obtaining an automatic discharge. If this is the case, the discharge process is done through the courts and there is usually an expectation that it will include a payment requirement over and above any funds already paid into the bankruptcy.

The “What is next” scenario

If you ignore the CRA, they start enforcing collection action which can include all or some of the following:

1. Attachment against wages or moneys owed to you (garnishment).
2. Attaching against funds held at your bank, which freezes the bank account as all funds are sent to the agency.
3. Registering security (a judgement) against assets including against your home or vehicle.

If you have a CRA debt and want to discuss your options, contact us to set up a free, confidential consultation to learn about typical CRA debt settlement scenarios and how we can help you establish a fresh financial start.