Bank Deposit Analysis
When the Canada Revenue Agency (“CRA”) audits a taxpayer, there are many different auditing methods or techniques that may be used. One of the most widely used of these methods is the bank deposit analysis, which is normally completed as part of a net worth audit.
What is a Bank Deposit Analysis?
If the CRA has decided to use a bank deposit analysis, they will review a taxpayer’s bank statements for the period under audit. They will add up every deposit into the bank account, and any deposits that cannot be explained are counted as income. The practical application of a bank deposit analysis is much worse then it sounds. CRA’s idea of what is an unexplained deposit is drastically different than most taxpayers. Perhaps a taxpayer had a birthday and deposited $1,000 of gifts into his or her bank account.
Simply telling that to your CRA auditor would likely result in the deposits counting as income. CRA wants documentation to explain these deposits.
A bank deposit analysis will also take into account withdrawals from a bank account. If the withdrawals can be proven to be expenses incurred in order to make a living, CRA will allow the taxpayer to write off that withdrawal. Again, proving this to CRA auditor’s can get extremely difficult due to their demands for documentary proof.
Fighting a Bank Deposit Analysis
Taxpayers who are auditing using a bank deposit analysis must go through their bank statements, line by line, in an attempt to provide CRA with the explanations they are looking for. This can be an incredibly lengthy process, and is normally extremely difficult as well.
If you are being audited using a bank deposit analysis, give us a call today to see how we can help!
CRA Resources
Case Law
Bachmann v. The Queen, 2015 TCC 51 – Bank Deposit Analysis and Gross Negligence Penalties
Hole v. The Queen, 2016 TCC 55 – Bank Deposit Analysis and Marijuana Grow Ops
Valibeigi v. The Queen, 2009 TCC 379 – Inheritance and Bank Deposit Analysis
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.
James Pendergast
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