What is the net worth audit and what is the impact of it?

A succinct description of the net worth audit is found in Bigayan v. The Queen.[1] At paragraph 2, Bowman J. (as he then was) said: The net worth method, as observed in Ramey v. R. (1993), 93 D.T.C. 791 (T.C.C.), is a last resort to be used when all else fails. Frequently it is used when a taxpayer has failed to file income tax returns or has kept no records. It is a blunt instrument, accurate within a range of indeterminate magnitude. It is based on an assumption that if one subtracts a taxpayer's net worth at the beginning of a year from that at the end, adds the taxpayer's expenditures in the year, deletes non-taxable receipts and accretions to value of existing assets, the net result, less any amount declared by the taxpayer, must be attributable to unreported income earned in the year, unless the taxpayer can demonstrate otherwise. It is at best an unsatisfactory method, arbitrary and inaccurate but sometimes it is the only means of approximating the income of a taxpayer. In Bigayan , Bowman J. also set out the ways in which a taxpayer could seek to overturn a net worth assessment. At paragraphs 3 and 4 of that decision, he said: