Reddog2402 2221 Report post Posted May 17, 2012 Either assumption would have to be just a number the auditor made up out of the blue. There would be no possible defense available to any taxpayer (no matter their occupation or business) if CRA auditors were not at all accountable for basing their estimates on some sort of actual evidence - such as a demonstrated electronic money trail, or a certain level of lifestyle or assets that are being supported by the taxpayer. One approach CRA can use, and have used very successfully (for them), in cases where records are lacking and transactions may be difficult to substantiate is what they refer to as a "lifestyle audit". Essentially, they look at your lifestyle and put a price tag on it. When they compare the estimated cost of your lifestyle to your reported income, they then treat the difference as unreported income. I've heard of this approach being used on everything from small construction companies to hot dog vendors. And this approach is VERY difficult to defend. I don't want to scare everyone - your best defence, as others have point out, is to have decent records. Even a log book listing times, dates and durations of appointments would be sufficient to substantiate the reported revenue. If its reasonable, and the end result is that your income is enough to support your lifestyle, they would have no reason to push further. Quote Share this post Link to post Share on other sites
