CRA and the Stripper – An example of the Net Worth Assessment

 On August 10, 2009, the Tax Court of Canada ruled against the Canada Revenue Agency (CRA) who issued net worth assessments in excess of $1 million to Ms. Martine Landry, a former Montreal stripper. The Tax Court of Canada accepted Ms. Landry’s argument that she received lavish gifts from an unidentified boyfriend and rejected CRA’s net worth assessments.

CRA uses a two-step process to create a net worth assessment. First, CRA looks at a taxpayer’s assets and liabilities at the beginning and end of the tax year, and determines the increase or decrease in the taxpayer’s net worth. Second, CRA determines the taxpayer’s expenditures for the tax year through an analysis that utilizes Statistics Canada data on the average expenditures of a comparatively-sized household and information provided by the taxpayer. CRA then determines that the taxpayer’s income for the tax year is equal to the increase in the taxpayer’s net worth plus the taxpayer’s expenditures for the year. The taxpayer is subsequently assessed or re-assessed for the outstanding amount of tax, interest, and possibly penalties for that tax year.

Like any notice of assessment, a taxpayer has a right to appeal the assessment or reassessment by filing a notice of objection.