We solve serious CRA tax problems

Involved in a CRA Net Worth Audit?

When facing a net worth audit, you don’t need a tax lawyer. At Faris CPA, we’ve been providing net worth audit assistance and saving taxpayers unnecessary legal fees for over a decade.

Without a Chartered Professional Accountant (CPA) on side who is a tax expert, it can be very difficult to counter the assumptions and interpretation that the CRA takes.

Contact the professionals at Faris CPA for an assessment today. Call 1 (844) 340-5771 or use the contact form to get started.

GET YOUR TAX PROBLEMS SOLVED BY FARIS & TEAM

CRA Networth Audit

What is a 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 the taxpayer, personally, does not spend their 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 generally 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.

CRA Net Worth Audit Ahead?
Gain Clarity with Our Expert Review!

Expert tax guidance, Chartered Professional Accountant

When are you at Risk of an Audit?

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 Audit

Challenging a net worth assessment is no easy task and often takes up a large amount of time.  The person being audited will need to go through every deposit and withdrawal in their bank accounts, credit cards, and investment accounts, as well as the assets they own or have owned, and then reconcile these amounts with their 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 does one remember what each deposit and withdrawal in an account was and what it was for? Even if one can remember, there is the difficulty of proving what one remembers. This is why the assistance of a diligent and experienced tax accountant is a must.  The best time to get a tax accountant involved is when the auditor contacts you and before any documents are handed over.  The earlier one gets a tax accountant on board, the greater the chances of a favourable outcome are.

Without a Chartered Professional Accountant (CPA) on side who is a tax expert, it can be very difficult to counter the assumptions and interpretation that the CRA takes. Once an audit is complete and the auditor has made a decision in designating amounts as income or personal expenditures, as part of a tax audit, they have internally supported their conclusions and used the documents and arguments advanced by the person being audited.   This decision makes it practically unlikely that an objection at the CRA level will result in any changes. If one is not able to get the CRA auditor to see things the taxpayer’s way, the matter will likely end up in tax court.  This is a lengthy and expensive road to travel and one that is best avoided through detailed submissions prepared by an experienced tax accountant.

ACCA-Logo
AICPA-Logo
Chartered professional accountant logo
Chartered Professional Accountant in Canada, U.S. and U.K.

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.

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

Other Services

Faris CPA is proud to offer a wide variety of tax-related services, not limited to:

FAQS

Can I challenge a net worth audit?
The CRA can perform a net worth audit to determine what they believe your under reported income is. Challenging a net worth audit 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 CRA for many years in order to minimize any taxes that CRA is asking you to pay.
How do I deal with CRA audit?

Dealing with CRA audit can be quite challenging Nonetheless, there are several undertakings you can do to successfully handle the CRA audit. 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.

What triggers a CRA audit?
There are several issues that can trigger a CRA 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. CRA also conducts random audits in industries that tend to have a high level of tax non-compliance, such as construction, real estate or hospitality industries.
What are the major pitfalls of net worth assessment audit?

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.

How do you challenge a net worth audit tax assessment?

You can challenge a net worth audit tax assessment 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.

What is the net worth audit calculation?

The net worth audit is the difference of expenditures and the total of opening net worth + reported income. The CRA generally calculates net worth at the beginning of the audit period, and caculate net worth at the end of the period after taking expenses into account.

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 Sam Faris by a tax lawyer to handle my a complicated tax audit by the CRA and to refile all my outstanding corporate and personal tax returns. He was highly recommended by the tax lawyer and by other professional. The minute I hired Sam to sort out the big mess that I had with the CRA, I felt I am safe and in a good hands. He and his team were responsive to my questions and my concerns. Once he completed his work, he insisted to meet in person with the auditor and the team leader. His work quality was second to none. He backed up all accounts prepared a perfect reconciliation. On that basis, he presented his work confidentially and was able to convince the CRA team with his position and his calculations. I must admit that Sam Faris is the best tax consultant and he is a life saver. As a side note, his fee is very reasonable considering to other professionals and more importantly the work quality and the results that he achieved are unbeatable.
Response from the owner:Many thanks Moss for the positive review.
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
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.