What is the net worth method used in assessing income tax returns?

The net worth method is used when a taxpayer has failed to file income tax returns or has no records[1] or the records are in poor condition or the records are totally unreliable. In Dao v. The Queen, 2010 TCC 84 (CanLII), Campbell J. summarized the law with respect to the net worth method and she observed: Therefore, the method, by its very nature, will result in an inaccurate approximation of a taxpayer's income. While this may produce unsatisfactory results, it is based on the premise that, in a self-assessing system, a taxpayer is in the best position to know the exact amount of income earned over a period of time. If proper records are kept, then it should be an easy task for a taxpayer to factually point out the errors in the Minister's assessment and properly support the proposed changes to the assessment with the appropriate documentation or other evidence.