How is a net worth assessment calculated in an appeal?

It is the Appellant’s further position that assets acquired prior to 2000 should not be used in the net worth calculations. However, a net worth analysis in tax appeals is used to estimate an Appellant’s income. It is necessary that he be given credit for those assets owned prior to the years in issue. In Ramey v. R.[5], Bowman T.C.C.J. described how a net worth assessment is calculated. At paragraph 6 he stated: 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. A net worth assessment involves a comparison of a taxpayer's net worth, i.e., the cost of his assets less his liabilities, at the beginning of a year, with his net worth at the end of the year. To the difference so determined there are added his expenditures in the year. The resulting figure is assumed to be his income unless the taxpayer establishes the contrary. Such assessments may be inaccurate within a range of indeterminate magnitude but unless they are shown to be wrong they stand. It is almost impossible to challenge such assessments piecemeal. The only truly effective way of disputing them is by means of a complete reconstruction of a taxpayer's income for a year. A taxpayer whose business records and method of reporting income are in such a state of disarray that a net worth assessment is required is frequently the author of his or her own misfortunes.