We solve serious CRA tax problems

NET WORTH AUDIT

Almost all Canadian resident taxpayers and, in some circumstances, non-resident taxpayers, have to file various returns with the Canada Revenue Agency.  If a taxpayer fails to file a tax return when and as required, the Canada Revenue Agency (CRA) can either make a demand of that taxpayer to file missing returns or, in most cases, will use an arbitrary assessment method to determine that taxpayer’s tax liability.  Arbitrary assessments often result in an unusually large amount of tax owing, leaving the taxpayer with the heavy burden of proving the CRA wrong.  One particularly problematic arbitrary assessment method that the CRA uses is called the Net Worth Assessment that results from a Net Worth Audit.

The Net Worth Audit is empowered by the Income Tax Act and permits the CRA to review the various components of a taxpayer’s lifestyle and assets and compare this against the reported income of that same taxpayer.  This review can include where the taxpayer lives, how nice the home is, what cars the taxpayer drives, what clothing and jewellery the taxpayer wears, and the entertainment and trips that the taxpayer engages in.  Where there is a discrepancy between the apparent wealth circumstance of a taxpayer and their reported income, the CRA will issue a reassessment.

A Net Worth Audit is premised on the apparently simple principle that the increase or decrease of a taxpayer’s net worth, year over year, tied to the taxpayer’s income or loss for that year.  The CRA starts by comparing the year over year changes of a taxpayer’s assets and liabilities.  Then, the CRA calculates that taxpayer’s income or loss, taking into consideration personal expenditures and non-taxable sources of income. Personal expenditures can sometimes be assumed and include categories that you, personally, do not spend your money on (for example, tobacco, alcohol, gambling – all determined through the use of statistics).  The sum total of these arithmetic process is the change in a taxpayer’s net worth.  The value obtained from the net worth method is then compared to the reported income of the taxpayer to see the taxpayer has been truthful in their reporting.

Despite the apparent simplicity of this method, there are practical complications that often work against the taxpayer.  One particular problem is that the CRA is entitled to assume facts that are often to the taxpayer’s disadvantage.  Once these facts are assumed, the taxpayer has to prove the CRA wrong in order to get a correct assessment.  Another problem is that the CRA lacks the information to know what amounts are from non-taxable sources, such as inheritances or lottery winnings.  What the CRA often assumes is that any deposit in an account is income and any withdrawal is a personal expenditure.  This is often not accurate as a deposit can represent an inter-account transfer, a loan, a gift, an inheritance, or some other amount that is not taxable.  The method itself is at best inaccurate and contains inherent, systemic errors.

Any taxpayer is at risk of a Net Worth Assessment. However, those most susceptible are taxpayers who have not properly reported their income or those who fail to keep proper books and records of their financial affairs.  Also at risk are taxpayers whose apparent lifestyle doesn’t match their reported income.  The most obvious way to not get trapped into a net worth assessment is to make sure that the CRA has no reason or basis to use this method.  This means filing all your returns on time, using complete and accurate information, and keeping complete books and records.

Challenging a net worth assessment is no easy task and often takes up a large amount of time.  You will need to go through every deposit and withdrawal in your bank accounts, your credit cards, and your investment accounts, as well as the assets you own or have owned, and then reconcile these amounts with your tax filings.  Where the audit spans a number of years or goes back a few years, this can be extremely difficult for a taxpayer.  How do you remember what each deposit and withdrawal in your account was and what it was for? Even if you remember, there is the difficulty of proving what you remember. This is why the assistance of a diligent and experienced tax accountant is a must.  The best time to get your tax accountant involved is when the auditor contacts you and before any documents are handed over.  The earlier you get your tax accountant on board, the greater the chances of a favourable outcome are.

Without a tax expert on your side, you can at least take a few steps to try and make sure that the CRA hasn’t grossly overestimated your income using the Net Worth Method.  At the very least, you can:

  1.   Review the bank account and credit account analysis to make sure that inter-account transfers are not included in your income and personal expenditures;
  2.   Drawings from lines of credit or credit cards are not included in your income or personal expenditures;
  3.   You obtain and pass on to the auditor documents that prove non-taxable deposits such as inheritances, loans, gifts, insurance payouts, lottery and gambling winnings, and amounts from the sale of personal property;
  4.   You provide proof of actual household expenditures so that the auditor does not use statistics to include amounts that are not in line with your lifestyle; and
  5.   All of your assets and debt are taken into account (sometimes auditors forget to include debt related to properties, such as mortgages or car loans).

It is unlikely that an objection at the CRA will result in any changes. If you are not able to get the CRA auditor to see things your way, you will have to take the assessment to tax court.  This is a lengthy and expensive road to travel and one that is best avoided.

About the Author

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.

Faris CPA absolutely fantastic tax consultant firm. Sam and his team help me with an extremely difficult tax audit by CRA. They have done an amazing job. You guys are amazing and well deserve five star.
Response from the owner:Dear Eliyas Thank you for the positive Google review and the kind words. We heave dealt with many CRA audit cases. We have delivered the best services to our clients as we are confident with our work and its quality. Please feel free to reach out us if you require our services in the future. Sam Faris
Sam Faris is number one tax advisor and consultant. I contacted a few professionals but he was the only one who was able to help me with my dispute with the CRA. Many thanks to him.
Response from the owner:Said Thank you for the kind words and the 5 stars Google review. CRA issues may get very complicated. I am glad that everything worked out perfectly with you. Feel free to reach out to us any time you require our services. Sam Faris
If you are looking for a tax consultant to help you with the CRA tax audit, Sam is the man. I appreciate Sam for helping me during the tax audit. He is the best professional and number one tax consultant out there. I will recommend him to anyone who has issues with the CRA.
Response from the owner:Thank you Omar for your positive feedback and the five stars Google review. We have more than a decade of experience in dealing with the CRA audits and helping our clients and providing all the required support. As you noticed, we provide a high quality of work to support our calculations and to save our clients from an unfair assessments by the CRA. Thank you again and will remain at your disposal if you require our services in the future.
I had Sam to help me filling my outstanding personal and corporate tax returns under the voluntary disclosure program. He did a very good job and filled them within 4 days and had me protected under the program. As a result of his work efficiency, I saved interest and penalties and now I am up to date with filling all tax returns.
Response from the owner:Anjan Your positive feedback is much appreciated. Providing a high quality services and submit the packages on timely basis is essential especially once it comes to cases which involves voluntary disclosures program. We prioritize these cases and we do our best to file the packages asap and before CRA contacts our clients. Thanks again and let us know if you have any question in the future. Sam Faris
Sam and his team are expert and awesome tax consultants. They were incredibly professional, respectful and informative in dealing with us. What stood out the most was the team’s attention to details to finding all possible deductions to minimize my tax liability.

They helped me to file my many years of unfilled and outstanding personal and corporate tax returns and the tax amount that I ended up owing is very minimal in comparison to what other CPA suggested.

I am now at much better situation from a tax standpoint and involving Faris CPA to deal with my matter made me more comfortable as I was confident that my case was being handled by a true professionals.

I highly recommend the firm for anyone who has tax problems with the CRA and needs to get the best results.
Response from the owner:Sangeet Thank you for the five stars review. Filling multiple years of personal and corporate tax returns is one of our specialties. We have been helping clients catching up with their taxes for more than 15 years now. While we are doing the work, we perform tax planning to minimize taxes owing and at the same time we prepare a high quality package to protect our clients and protect our work in case CRA decides to perform tax audit. Thank you again and feel free to contact us in the future if you have any question regarding our work. Sam Faris
We spoke to a few CPAs before hiring Sam of Faris CPA. Immediately Sam was able to pin point the problem and provided a solution to my problems with the CRA tax audit. We had a very pressing deadline to make a submission to the CRA and missing the deadline will involve significant amount of penalties that we will have to pay. Not only that Sam worked none stop to meet the deadline, he was able to save us thousands of dollars. We are also now in full compliant with the taxes and in a good standing. If you are looking for a tax consultant or you are having a CRA tax audit, don’t waste your time and money. Hire Sam Faris and you will not be disappointed.

Many thanks to Sam and well deserved 10 stars.
Response from the owner:Anish Thank you for your positive feedback. When it comes to CRA issues, meeting deadlines is extremely important and at the same time providing a top quality package is as important. This will avoid escalation with the CRA and as you realized, will save money to our clients. As in all cases, we took your case seriously and we aggressively worked on it to meet the deadline at the same time we did not compromise our work quality. I am glad that you are satisfied with the results. Posting the Google review is rewarding to our hard work too. Please feel free to contact us in the future if you have any questions. Sam Faris
Faris CPA filed my multiples years of unfilled tax returns for both my corporate and my personal. He saved me taxes and was able to waive the penalties for me. Great job team and I will recommend Faris CPA to everyone who has CRA problems.
Response from the owner:Ahmad Your five stars Google review and your positive feedback is much appreciated. All the cases that we take are time sensitive and we take them extremely seriously to avoid complications with the CRA. Meeting deadlines is essential in any case we work on. This is why we were able to save you penalties and interest as we filed all returns before CRA makes a contact with you. We will remain at your disposal anytime you need our services in the future. Sam Faris
CRA performed net worth audit to my company and my personal taxes for three years. I hired another professional at the beginning and paid him 25k. This professional did not deliver what he promised and was unable to reduce taxes as per the CRA proposal letter. I was referred to Sam by a tax lawyer who highly recommended him for any CRA audit. I consulted Sam and I googled him as well. I was impressed with his knowledge, confidence and excellent reputation and decided to hire him. Sam results at the end were way less from CRA proposal. He backed up all his numbers in a way that CRA had to accept his approach and his final numbers. I was very happy with the final tax bill after the audit was completed. I have so much respect to Sam and his work ethics. I was also happy with his fee and I think his fee is reasonable too. Thank you Sam for all your help. You saved mine and my family lives.
Response from the owner:Thank you for the positive five stars review and your kind words. Net worth audit is the most complicated audit that CRA performs where CRA has doubts that taxpayers under reported the income. This kind of audit is one of our specialties. Over the years, we have developed a unique and sophisticated strategy to defend our clients from the CRA excessive numbers. In many cases, CRA auditors acknowledged and complemented our work and our approach. We will remain at your disposal if you need our services in the future. Sam Faris
Dealing with CRA is stressful. Sam took care of me from day one and accommodated my unique needs without hesitation. 5 stars for being professional and a good human.
Response from the owner:Thank you Don for the five stars Google review. We are glad that we met your expectations and your case is closed now. Happy to answer any questions in the future and we will address all queries CRA may have regarding our work. Sam Faris