Involved in a CRA Net Worth Audit?
When facing a CRA net worth audit, you don’t need a tax lawyer. At Faris CPA, we’ve been providing expert assistance and saving taxpayers unnecessary legal fees for over a decade.
Contact the professionals at Faris CPA for an assessment today. Call 1 (844) 340-5771 or use the contact form to get started.
What is a Net Worth Audit?
Almost all Canadian resident taxpayers, and in some cases, non-residents, must file returns with the Canada Revenue Agency (CRA).
If you fail to file on time, they can demand the missing returns or, more commonly, issue an arbitrary assessment to determine your tax liability. These assessments often result in significantly higher taxes owed, placing the full burden on you to prove them wrong.
One of the most aggressive and problematic methods is the NWA, which stems directly from an audit.
Under the Income Tax Act, authorities may review your lifestyle, assets, and spending habits, such as your home, vehicles, clothing, jewellery, vacations, and entertainment, and compare them to your reported income. Any significant discrepancy may trigger a reassessment.
How to Prepare for a Net Worth Audit
Preparation is critical for anyone in Toronto or the GTA facing an assessment by the Canada Revenue Agency. Start early by gathering every bank statement, credit card record, investment statement, and asset purchase document for the audit years.
- Organize deposits and withdrawals with clear explanations (transfers, gifts, loans).
- Document non-taxable income sources with proof such as inheritance letters or loan agreements.
- Work with a CPA experienced to rebut assumptions before they become final.
Early professional involvement with a Chartered Professional Accountant (CPA) who is a tax expert, dramatically improves outcomes and avoids escalation.
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When are you at Risk of an Audit?
Any taxpayer can be subject to a Net Worth Assessment, but the risk is higher for individuals who fail to report income accurately or do not maintain proper financial records. Taxpayers whose lifestyle appears inconsistent with their reported income may also attract scrutiny.
The best way to reduce the risk of a Net Worth Assessment is to give them no reason to use this method by addressing unfiled tax returns, reporting complete and accurate information, and maintaining organized books and records.
In 2018 alone, net worth audits contributed to $132.6 million in additional taxes collected nationwide, underscoring the CRA’s increasing use of this tool.
Challenging a Net Worth Assessment
Challenging a net worth assessment is complex and time-consuming. Taxpayers are often required to trace and explain years of bank transactions, credit card activity, investments, and asset purchases, then reconcile them with past tax filings. As time passes, remembering and proving the purpose of every transaction becomes increasingly difficult.
This is why involving an experienced tax accountant early in the process is critical, ideally before any documents are submitted. A knowledgeable CPA can help respond to audit assumptions, prepare detailed submissions, and improve the chances of a favourable outcome. Once the auditor has finalized their conclusions, reversing the assessment through an objection becomes much more difficult and may lead to costly tax court proceedings.
Many initial net worth assessments are reduced or overturned when taxpayers provide proper documentation and professional representation, especially in complex Toronto and GTA cases.
Recent data shows the agency conducted roughly 84,000 compliance actions in 2024-25 (up from prior years), with a growing focus on high-net-worth individuals and families across Canada, including many in the Toronto and GTA area.
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 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 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 Canada Revenue Agency.
Based on the findings of our firm, the auditor adjusted the net worth audit to reflect our analysis and calculations.
“My life was collapsing. Involving Sam was the best decision I made. He is a life Saver. 10 stars.”
Net Worth Audit Resources
Other Services
Faris CPA is proud to offer a wide variety of tax-related services, not limited to our specialized tax audit services, voluntary disclosure program, and tax assessments.
Frequently Asked Questions About CRA Net Worth Audits
The CRA can perform a NWA to determine what they believe your under reported income is. Challenging an assessment should be done by a professional who has in depth understanding in this type of audit, strong analytical skills and who has disputed this type of audit with them for many years in order to minimize any taxes that they are asking you to pay.
Dealing with an audit can be quite challenging. Nonetheless, there are several undertakings you can do to successfully handle the issue. In such a situation, you should cooperate and be respectful, check in with your tax representative, determine whether you want to win the case or settle the issue and also retain a professional tax accountant.
There are several issues that can trigger a Canada Revenue Agency audit including claims of capital losses and gains, unreported income, underreported income, unusual changes in deductions or credits, excessive business expense claims and recurring losses from a rental property. They also conduct random audits in industries that tend to have a high level of tax non-compliance, such as construction, real estate or hospitality industries.
Some of the major pitfalls of the net worth assessment audit include the inaccuracy and the punitive nature of the methodology, the existence of routine errors in its application, the one-size-fits-all application of statistical data is flawed, and the method is used even when contraindicated.
You can challenge this by listing down possible explanations and responses to the auditor’s assumptions. As a taxpayer, your main objective should be to demolish all the auditor’s beliefs about your case.
The net worth assessment is the difference of expenditures and the total of opening net worth + reported.
Gather complete financial records, document all non-taxable sources, and engage an experienced Toronto CPA early to counter assumptions effectively.
Yes, most assessments are successfully reduced or overturned with strong documentation and professional representation at the audit or objection stage.
