Monday’s= Small Business
Canada Revenue Agency (CRA) will sometimes do what is called a “net worth assessment” on an individual for the purposes of figuring out if that individual is failing to report all of the income that they earn.
This is how they find people who are getting paid in cash and not reporting it.
The calculation takes a look at what a taxpayer owns, say in 2012 and then look at what they own in 2017. For the five years in-between, CRA calculates the increase in the net worth of the taxpayer. They then do a bunch of calculations to figure out how much money the taxpayer would have to make in order to improve their net worth by that much. They compare their calculations to the tax returns filed by the taxpayer. If the person has improved their net worth by $300,000 and has only reported $100,000 over the five years on their tax returns, then CRA asks for the tax on the unreported income.
At this point it is up to the taxpayer to prove CRA is wrong, not an easy situation to be in.