What Are Net worth Audits?

• Net-Worth Audits are a blunt audit tool used by CRA to determine what your income is based on the difference between your opening and closing asset postion.

• Considered an Indirect Audit Technique used when:
  

  • There are inadequate books and records to support what your income is

  • or when the CRA is suspicious that your previous income does not support your assets owned as of today and they believe there is undisclosed income from prior years.

• How is it performed: They look at your Assets less Liabilities at the start of the audit period (can cover more than one year) and compare that to your assets less liabilities at the end of the audit period

  • and the amount of your expenses

Note: An audit period can span many years

• Then they compare how much income you have declared and the difference if any is considered to be unreported income.

Then they will be kind enough to charge you with:

• Penalties

  • Interest

  • And they may try to prosecute you for tax evasion

Auditors who carry these out are not necessarily skilled and often make mistakes

To properly challenge a Net-Worth Audit - a detailed analysis of the CRA Auditors:

• Working Papers and

• Taxpayers books of record