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.

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
Sam was very responsive and prompt. Exceptional customer service as well!
Response from the owner:Dan Thank you for your positive 5 stars review and the kind words. We strive to provide best customer service as we are aware that all cases that we take on are time sensitive and require a higher quality of work in order to be successful with the CRA. Your cooperation and prompt reply to our questions was important in getting everything in order and submitting the package on timely basis. We will remain at your disposal anytime you need our services in the future. Sam Faris
Best service. Very impressive and happy with all work Sam has done for me.
Response from the owner:My pleasure Angel and thanks for the 5 stars Google review and your kind words. We are glad that you are happy with our services and the results we got you. Please feel free to contact us in the future for any questions that you may have regarding your file. Best Sam Faris
Great experience with Sam!
Response from the owner:Hello Dasha Thank you for the five stars review and your kind words. It was a pleasure working with you and I am glad that we met your expectations. Please feel free to reach out to us if you need to in the future. Many thanks Sam Faris
I was so impressed with Sam's professionalism and how quickly he reacted to my inquiries. His knowledge was evident, and he handled everything expertly. I highly recommend his services.
Response from the owner:Mohamed Thank you for the 5 stars Google review and your kind words. Our goal is always to make the process efficient and the workflow as smooth as possible. We are glad that we met your expectations and we will remain at your disposal at anyone in the future. Sam Faris
Thank you for all your help! Quick and stress free! Definitely recommended!
Response from the owner:Thank you DD for the 5 star positive review. We were happy to work on your file and get you positive results. We will remain at your disposal in the future if needed. Thanks Sam Faris
Sam and his team helped me to file my multiple outstanding personal and corporate tax returns. He was able to save me from legal action by the CRA, saved me taxes and CRA waived the penalties for me. I highly recommend his services for any tax help and CRA audit needs.
Response from the owner:Ms. Rivera Your 5 stars Google review is very much appreciated. I am glad that we met your expectations and you are happy with our work quality and the outcome achieved. We are specialized in filling multiple years of outstanding personal and corporate tax returns. We have helped many clients for more than 15 years to file all their outstanding tax returns in the most efficient way. We were able to get them out of troubles with the CRA, save them taxes, waiving penalties and get them interest relief. We take a pride of what we do and our team is fully dedicated and experienced to deal with any type of dispute with the CRA. We are at your disposal anytime you need us in the future. Sam Faris
Faris CPA took care of my tax audit case by the CRA. The team performed the work on timely basis and in the most efficient way possible. End results are beyond expectations. Hire Faris CPA and they will do the required work with reasonable fee.
Response from the owner:Many thanks Andrea for your positive review and I am glad that you are happy with our services. Our firm is specialized in all kind of tax disputes with the CRA including tax audits. All our staff are CPAs who have many years of experience in fighting the CRA. Thanks again and please feel free to reach out to us in the future if needed. Sam Faris
I found Sam online and I decided to have a consultation with him to discuss my CRA audit. I got a very good feeling about him, his integrity and his tax knowledge and skills and I had no doubts that he would be the best fit to provide audit help and support. I decided to hire him to handle my case. His approach to my case was consistent to the advice that he gave me at the conclusion. Sam was able to prepare working papers and supporting documents to show the auditor why his numbers are overstated. Sam had to involve the team leader and insisted to meet with him as the auditor refused to adjust his numbers. Sam confidently presented his work to the team leader and the team leader accepted his numbers without any adjustments. Sam deserves 10 stars for all what he has done in my CRA audit case and all his support and help.
Response from the owner:Thank you for the 5 stars review and your kind words. I am glad that we met your expectations. Please feel free to reach out to us if you require further help in the future.