Plain meaning
An indirect assessment method that estimates income by comparing changes in assets, liabilities, spending, and reported income.
Also called
indirect verification of income
net worth audit
Key points
- The method estimates income using changes in net worth plus personal expenditures and other adjustments.
- It is often used when books and records are missing, unreliable, or incomplete.
- Taxpayers may challenge assumptions, opening balances, non-taxable sources, loans, gifts, or errors in the calculation.
- Net worth assessments are fact-heavy and can lead to significant disputes over evidence.
Why it comes up
Net worth assessments can arise where records are incomplete or the CRA believes reported income does not explain lifestyle or asset changes.