CRA Net Worth Audit - Challenging Necessity And Methodology

According to the Tax Court of Canada in Ramey v. The Queen, 93 DTC 791 (Ramey), at paragraph 6, the "net worth method of estimating income is an unsatisfactory and imprecise way of determining a taxpayer's income for the year. It is a blunt instrument of which the Minister must avail himself as a last resort."

Subsections 152(7) and 152(8) of Canada's Federal Income Tax Act, RSC 1985, c 1 (5th Supp) provide the legislative foundation for the use of the Net Worth Audit method. According to subsection 152(8), a tax assessment by the Canada Revenue Agency ("CRA") is valid and binding despite errors, yet subject to dispute. Comparable provisions are found in section 299 of the Excise Tax Act, RSC 1985, c E-15.