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What is a Net-Worth Assessment?

CRA T1135 Form

Canadians often think that the Canada Revenue Agency either has to accept the values they are provided with or have to prove their case if they want a different result. This belief is very far from the truth. The Canada Revenue Agency can make assumptions about your income and expenses that you, as the taxpayer, have to prove wrong. One situation where this power to make assumptions often comes up is when the CRA conducts a net worth assessment audit.

Net-worth assessments or a net worth assessment audit is an extremely powerful tool that the Canada Revenue Agency can use when they don’t think that the taxpayer is truthful about their income or expenses. The effect of a net worth assessment audit is that the CRA can assess a taxpayer on an amount of unreported income, and therefore results in taxes owing, interest, and penalties. Combine this with the rule that an assessment is presumed to be correct, irrespective of errors in it, and you have a recipe for financial disaster. Once you are the victim of a net worth assessment audit, it is up to you to prove the CRA wrong. This can be a very challenging and time-consuming task.

Obviously, the best way to avoid getting stuck in this tax-quagmire is to ensure that the CRA has no reason to think that you aren’t truthful when filing your taxes, that you keep accurate and complete books and records, and that you are actually filing your taxes and are doing so on time. Not filing taxes on time or at all is the most common reason that the CRA resorts to a net worth assessment audit. Appearing to live beyond your means, for example on social-media (that the CRA monitors), can also lead to a net-worth assessment. But what can you do if the CRA has determined that you are going to be subject to a net-worth audit?

The best defense is a good offense! By getting a professional involved before the auditor shows up, and having one present to assist and guide the auditor, increases the chances that the outcome will be as favorable to you as possible. Even if you end up being assessed for unreported income, the professional likely has made sure that the potential issues you have to challenge are greatly reduced, saving you a ton of money when objecting and appealing the assessment.

The CRA, during a net worth assessment audit, will look at changes in your assets and liabilities over the tax year and also take into account your expenses. The total any increase in assets, plus any decrease in liabilities, plus non-deductible expenses for the year is assumed to be due to your income for the year.

If this number differs from what you reported, you will be reassessed unreported income. Your representative will assist in this process by organizing the information, making sure that the tax effect of the changes is properly considered and interpreted, and that the final result represents a fair and accurate representation of taxable income. This takes experience and knowledge.

If you are reassessed for unreported income as a result of the net-worth audit, you have a fight ahead of you. You have to prove the taxman wrong or challenge the use of the net-worth assessment itself. Both of these methods are time-consuming and require detailed analysis. The taxpayer, in addition to proving the CRA’s assumptions and interpretations wrong, has to provide an explanation for the increase in net worth. There are valid non-taxable explanations, but there are also traps into which unwary taxpayer can fall.

If you are faced with a net-worth audit, or have been given a net-worth assessment, get the experts in your corner. Early involvement is best, but it’s never too late to get someone on your side.

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Case Study

A new client of ours had a net worth assessment performed on them and had received a net worth audit. The financial impact of the net worth audit was significant and would have a major impact on his life.

Our firm was selected to help him address these issues with the CRA.

Our firm performed an intensive review of the net worth audit from the CRA. It was discovered that the auditor had made many mistakes. Sam Faris met with the auditor, team leader and director from the CRA.

Based on the findings of our firm, the auditor adjusted the net worth audit to reflect our analysis and calculations. As a result, total reduction in the tax bill was 2.5 million dollars.

“My life was collapsing. Involving Sam was the best decision I made. He is a life Saver. 10 stars.”

pro-tip

Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.

I was referred to Mr. Faris by another professional who recommended him to deal with my multiple years of outstanding corporate and tax returns. I interviewed Sam and was impressed in his confidence and transparency. He did not promise the moon just to get my business. Sam was able to file all returns under the voluntary disclosure program. After completing filling all tax returns, I realized the amount of money he saved me. I enjoyed very much working with him. He ensured that the work progress flow smoothly without any complications. He took to consideration the emotional stress factor and he was available to speak with me even beyond business hours just to make me more calm and to make me feel that he is on top of the matter and it will be resolved to my satisfaction. Indeed, this is what happened. The matter was resolved to my satisfaction and CRA concluded that the returns which Sam filed are reasonable and there is no need to further audit me nor my company. In summary, Sam is a life saver. He saved me and saved my family and now I am in the right track where all my tax filing obligations are met and I don’t owe any taxes. So grateful to Sam and his dedication while working on my file.
Response from the owner:Raj Thank you for the positive Google review. We are happy that you are satisfied with our services. Voluntary disclosure program is one of our specialties and we have dealt with many complex cases too. We get referrals from other professionals as we have been in the business of fighting CRA many years and we have countless success stories that many professionals are aware of. Please do contact us if you require further help in the future.
Sam is an excellent CPA and the best tax consultant in the country. He helped me to deal with a very complicated tax audit with the CRA where the CRA sent me a proposal assessment of 1.5 million dollars based on their net worth audit calculation and analysis. Sam was able to provide a counter analysis which highlighted significant mistakes that the auditor made with his assumptions and calculations. It’s ridicules that CRA wanted to taxed me on a loan that I obtained from my bank. Sam dealt with this audit perfectly. He demonstrated a very high level of expertise and CRA had to accept his counter analysis with no question asked. Many thanks to Sam’s efforts and high business standards in dealing with this issue and resolve it to my favor. I will have Sam as my primary CPA going forward so I can focus on doing business and will have a peace of mind in terms of the high quality of work done by him. Well deserved this review with the 5 stars rating.
Response from the owner:Yash Thank you for the positive feedback and the 5 stars Google review. We are glad that you are happy with our service and you are satisfied with the outcome. Net worth audits are very complicated and disputing them might get very tricky. We have been dealing with the same types of audits for many years and we are confident in fighting CRA and to point out mistakes that the auditor have made while performing the audit. We will remain at your disposal anytime you contact us in the future.
Sam Faris helped me with a complex cross border tax matter. This issue involved 12 years of tax returns and it was as a result from mistakes that my previous accountant did. He was able to perfectly address the issue with the CRA and to fix the returns under the voluntary disclosure program. End results; CRA accepted Sam’s work with not a single question and the returns were reassessed to my satisfaction without penalties and interest. Many thanks to Sam brilliant work.
Response from the owner:Dear Sir It was a pleasure working on your file and get you the results that you aimed to have and to your satisfaction. We have been dealing with similar cases for many years and we were confident that the results are favorable. Please feel free to contact us in the future if you do require further help.
I found Sam’s firm online and I read the excellent Google reviews about him and his team. I decided to hire him to help me navigate an issue with the CRA. Sam delivered as expected and as promised. Results were to my satisfaction and I am very happy with how the process was handled. Highly professional and extremely knowledgeable.
Response from the owner:Dear Tanya Thank you for the 5 stars Google review and your kind words. We strive to provide the best customer service and make our clients relax and calm during the process. The cases we are taking are very sensitive so providing quality work to the CRA is extremely important so just to avoid any escalation and to make sure that our package is accepted from the first round. We will remain at your disposal anytime you require our services. Sam Faris
You will notice Sam is very quick with his responses. He knows his stuff and gives solid advice. Highly efficient, would recommend.
Response from the owner:Dear Jay Thank you for the 5 stars positive review. Working with you was pleasant too. Many thanks for your business and please do feel free to contact me if you have any questions. Sam Faris
after the initial assessment I had with Sam, he proposed a strategy to dispute CRA decision. He knew up front how to approach my case as he seemed that he dealt with similar cases many times. I hired him the end results were as promised and no surprises. Sam is very trust worthy and has a high business standards. May thanks Sam.
Response from the owner:Many thanks for the positive review.
I recently turned to Faris CPA for help with my tax filing, and I must say, I'm over the moon with the results! The whole process was a breeze, saving me time and stress. What really stood out was the friendly professionalism, impressive expertise, and crystal-clear communication from Sam and his team. They made what could've been a daunting task feel like a walk in the park! If you're looking for a warm, approachable tax expert who genuinely cares about his clients, I wholeheartedly recommend Sam and the folks at Faris CPA - they're great tax consultants!
Response from the owner:Many thanks.
Working with Sam and his team was an extremely valuable experience. One of the best Tax consultants in Toronto I've ever come across.

He has a ton of experience resolving problems with the CRA and was truly a big asset to me when I had issues I needed help with.

Would highly recommend Sam and Faris CPA, thanks again for all the great work!
Response from the owner:Thank you Paul for your positive feedback and we are glad we met your expectations.
I had an amazing experience working with Faris CPA for my CRA needs. They really know the CRA processes and made everything so easy. They were super professional, always ready to answer my questions, and made sure everything was done right. I couldn't have asked for better help. Highly recommend their services for anyone dealing with the CRA! -Sara
Response from the owner:Thank you Sara for the 5 stars review.