What is a CRA net worth audit and why is it concerning?

A net worth audit (also called an indirect verification of income) is a method CRA uses when it suspects a taxpayer's reported income does not match their lifestyle or financial position. Instead of reviewing your books directly, CRA calculates the increase in your net worth over the audit period — assets minus liabilities — and compares it to the income you reported. If your wealth grew more than your declared income can explain, CRA treats the difference as unreported income and reassesses you accordingly.

This method is particularly common in cash-intensive businesses such as restaurants, construction, and retail. CRA will gather information from bank records, property records, credit card statements, and other sources to build its picture of your finances. The burden then shifts — you must explain where the extra money came from (loans, gifts, inheritances, prior savings) to rebut the assumption that it is taxable income.

Net worth audits can produce large reassessments based on imprecise estimates. Challenging them requires detailed financial records and often professional representation. If CRA proposes a net worth assessment, obtaining legal advice early gives you the best opportunity to gather evidence and respond effectively.