How to Reverse a CRA Arbitrary Assessment (Notice of Objection vs Filing the Return)

The usual way to reverse a CRA arbitrary assessment is to file the actual return with accurate books. The CRA then reassesses based on your real income and expenses. If you're close to the 90-day objection deadline, file a notice of objection too, to protect your rights. Arbitrary assessments typically overstate tax because they leave out expenses and input tax credits.

Our main site explains how arbitrary assessments work. This guide is the reversal playbook.

Step 1: Check the date on the notice

You generally have 90 days from the date on the notice of assessment to file a notice of objection (canada.ca, objections). Individuals have the later of 90 days or one year after the filing due date. Write the deadline down.

Step 2: Rebuild the books for that year

Pull every bank and credit card statement and reconcile them. Separate owner transfers, loans and GST collected from revenue, because arbitrary assessments often count every deposit as income.

Step 3: File the return

File the T2 (or T1 with T2125) and any GST/HST returns. The CRA usually processes the filed return as a request to reassess.

Step 4: Object if the clock is tight

If the 90 days are nearly up, file a notice of objection (form T400A or online through My Business Account) explaining that the return has been filed. That keeps your appeal rights alive while the reassessment is processed.

Step 5: Manage collections while you wait

Collections can carry on during an income tax objection, though the CRA generally holds back on collecting disputed income tax amounts. Talk to the collections officer, show them the filed return, and ask for a hold. See CRA payment arrangements.

Example (hypothetical)

A BC consulting corporation with about $420k in deposits was assessed at nearly $90k in tax, with no expenses allowed and HST refunds counted as revenue. After the books were rebuilt (contractor costs, software, rent, owner transfers removed) and the return was filed, the reassessed tax was a fraction of that. The penalties were recalculated on the lower amount.

Common mistakes

• Filing a return with no books behind it. If the numbers don't tie to the bank, the CRA may review it.
• Missing GST/HST. An arbitrary GST assessment is separate and has to be fixed separately.
• Ignoring later years. Arbitrary assessments usually come one year after another.

Getting it handled

Sansar rebuilds the books, files the real returns, files objections where they're needed, and talks to CRA collections, all for one all-inclusive flat rate backed by our 100% Happiness Guarantee. See our CRA letters page or the late business tax filing service.

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FAQ

Can I just pay the arbitrary assessment? You can, but it usually overstates tax because it leaves out your expenses. Filing the real return normally lowers it.

Do I need a notice of objection if I file the return? Not always, but if the 90-day deadline is close, filing one protects your rights while the CRA processes the return.

How long does the CRA take to reassess? It varies with CRA workload, and can be weeks to several months. Keep copies of everything you filed.

Will penalties drop when tax is reassessed? Late-filing penalties are calculated on the tax owing, so a lower reassessed tax generally means lower penalties.

Does an arbitrary assessment affect my GST/HST? GST/HST arbitrary assessments are separate. Each one needs its own returns filed to replace it.

Written by Gurdeep Sangha, founder of Sansar Solutions, a Vancouver-based bookkeeping and tax firm serving small businesses across Canada (mainly Ontario, Alberta and BC). Sansar is not a CPA firm; Notice to Reader and review engagements go through partner CPAs. This guide is general information, not tax or legal advice for your situation. Last reviewed: October 2026.