Unfiled Canadian Returns as a US Resident: Arbitrary Assessments, the VDP Route, and Catching Up From South of the Border

The southbound mirror of the expat catch-up has its own machinery, starting with the CRA tool that changes the incentive structure: arbitrary (notional) assessments. Where required returns aren't filed, the CRA can demand them and then assess without them — estimating income from slips, industry norms, and prior years, reliably in the government's favor, with penalties and interest attached and collections proceeding on the estimate; the practical consequence is that ignored Canadian filing obligations don't stay theoretical, they become invented balances, and the first move in many northbound catch-ups is replacing fiction with actual returns (which the CRA processes as adjustments to its own estimates — real numbers routinely cutting arbitrary assessments dramatically, as the payment-arrangements article's example showed). The population and their files: the incomplete emigrant — left Canada without filing the departure-year return (the part-year T1 with the deemed-disposition schedule, the elections, the date that starts non-residency) — whose catch-up is really an emigration file assembled late: departure date established, the T1161/T1243 forms, departure tax computed with the security election's late-filing questions handled, and the years after examined for what they should have been (nothing, for the clean non-resident; something, for those with continuing Canadian income); the non-resident landlord — Canadian rental income with no Part XIII withholding and no returns — whose repair runs the familiar sequence (the withholding liability that technically sits on the payer/agent, section 216 returns filed to compute tax on net income, the retroactive window for 216 filings, and the go-forward NR6 arrangement) with the VDP as the wrapper where penalties loom; the seller who skipped section 116 — the certificate never obtained, the buyer's withholding never done — a repair with urgency because the liability sits on the buyer and the interest runs; and the returned-then-left or never-quite-departed files where residency itself is the first question, answered before any returns are drafted because everything downstream depends on it. The VDP's role northbound: the same program the earlier article detailed — voluntary, complete, penalty-involving, a year past due — wraps the landlord's missed years, the emigrant's unfiled departure file, and the unreported-income histories in penalty relief and partial interest relief, provided it arrives before enforcement does; and the arbitrary assessment nuance worth knowing is that a demand to file or an arbitrary assessment on the issue can compromise voluntariness for that issue — one more reason the northbound catch-up starts the week the gap is found. The US-side coordination completes the project: Canadian tax paid in the catch-up years feeds amended US returns' foreign tax credits (the refund statute permitting — the asymmetry again), the section 216 election's net-income tax becomes creditable where the gross withholding wasn't practically recoverable, and the two-country workplan sequences so each side's corrected filings document the other's. What it costs: the landlord files typically resolve into modest net-income tax plus arrangements on the arrears; the emigration files turn on the departure-tax computation and how much the late elections can still shelter; and everywhere the arbitrary-assessment deltas and penalty relief do the heavy lifting — the northbound catch-up's recurring arithmetic being that the invented balance minus the real one, plus the penalties the VDP waives, usually exceeds the professional fees by multiples.

Key takeaways

• Arbitrary assessments are the forcing function: the CRA estimates, assesses, and collects on unfiled years — real returns filed late are adjustments that routinely collapse the invented balances, which makes filing the first move even before relief is discussed.
• Sort the file type first: incomplete emigrant (the departure-year package and elections), non-resident landlord (216 returns and the withholding repair), missed 116 seller (urgent, buyer-liability dynamics), residency-uncertain (the determination before any drafting) — each has its own sequence and its own late-filing windows to check.
• The VDP wraps the penalty exposure: voluntary-complete-penalty-past-due, an unprompted disclosure for the honest file — and voluntariness on an issue can be lost to a filing demand or arbitrary assessment on it, so discovered gaps become opened files within days, not seasons.
• Late elections have their own clocks: the departure-tax security election, the 216 retroactive window, NR6 go-forward arrangements — each with conditions that reward speed and punish the second year of drift.
• Coordinate the US side as one project: catch-up Canadian tax feeds amended-US-return credits inside the refund statute; the sequencing puts Canadian assessments in hand before the US amendments file; and the emigration files reconcile the departure-tax dates against the US arrival positions.
• The arithmetic favors action: arbitrary-versus-real deltas, VDP penalty waivers, and taxpayer relief on the interest layer — the northbound catch-up is one of the highest-return compliance projects in the corridor, and its returns decay with every enforcement letter.

The northbound project plan

Phase one, triage (week one): the file type identified, residency and departure dates established from the record, every CRA notice inventoried (demands and arbitrary assessments flagged for voluntariness analysis), the election clocks checked. Phase two, quantification (weeks two to six): real returns drafted for every open obligation — the departure package, the 216 years, the part-year T1s — with FX workpapers and the departure-tax computation; the arbitrary-assessment deltas computed; the VDP application assembled where it applies. Phase three, filing and resolution: the package in (VDP-wrapped or direct as the triage decided), assessments tracked, arrangements or relief applications on the residual, and the US-side amendments filed on the Canadian assessments' evidence. Phase four, the system: NR6s, instalments, and the go-forward calendar — because the northbound files, more than most, were created by transitions nobody administered, and the product is an administered steady state.

Worked example

A software manager left Vancouver for Seattle in 2022 and filed nothing Canadian since — no departure return, while his Vancouver condo rented out with no withholding and no returns, and last spring the CRA's letters began: a demand to file, then an arbitrary assessment inventing C$160,000 of income across the missing years. Triage: two file types stacked (incomplete emigrant plus non-resident landlord); the arbitrary assessment compromises VDP voluntariness on the assessed issues — the repair proceeds as direct filings with relief requests rather than a VDP application, the triage distinction that framing the file wrong would have missed. Quantification: the 2022 departure package (part-year T1, the deemed-disposition schedule modest — his assets were mostly RRSP and the condo, both outside the departure tax — T1161 filed late with a relief request on its penalty); section 216 returns for the rental years computing tax on net income of C$9,000-C$14,000 annually against the assessment's invented C$40,000s. Filing and resolution: the real returns replace the arbitrary balance — C$160,000 of assessed income becomes C$47,000 of actual, the balance owing dropping by three-quarters; taxpayer relief waives the T1161 penalty on the documented-confusion chronology and trims the interest; an NR6 and agent arrangement puts the go-forward rental on rails; and his amended US returns claim credits for the Canadian tax now actually computed, inside the refund window for all but the oldest year. Total: a five-figure invented debt resolved into a four-figure real one plus fees — and a Canadian filing calendar that finally matches the life he's actually living, which is what the whole project was for.

Official sources

Under the Voluntary Disclosures Program (applications received on or after October 1, 2025), an unprompted application receives "75% relief of the applicable interest and 100% relief of the applicable penalties," and a prompted application "25% relief of the applicable interest and up to 100% relief of the applicable penalties," together with relief from criminal prosecution, subject to the program's conditions. — Canada Revenue Agency, Voluntary Disclosures Program, https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html

"It is important to emphasize that when we select your return for review, that it does not represent a tax audit." The CRA checks returns through its Pre-assessment Review, Processing Review, and Matching programs — the Matching Program comparing a return "to information provided by third-party sources, such as employers or financial institutions." — Canada Revenue Agency, Review of your tax return, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/review-your-tax-return-cra.html

Practitioner note

Northbound catch-ups are arbitration between the CRA's invented numbers and the client's real ones, and real numbers win by embarrassing margins — the practice's recurring delta. Our triage decides two things in week one: the file type (emigrant, landlord, seller, residency-open), and whether enforcement contact has already reshaped the route from VDP to direct-filing-with-relief; everything after is quantification and sequencing, with the US amendments waiting on Canadian assessments like documents waiting for their exhibits.

See also: Browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the Canadian catch-up engagement — file-type triage and voluntariness analysis, the departure package and 216 return quantification against arbitrary assessments, VDP or relief-wrapped filing, and the US-side amendments on the corrected Canadian record. See cross-border pricing or book a call.