The auditor will validate your reported business income indirectly through other references or alternative methods. Generally, CRA uses the following methods:
- Your recorded income does not match your living expenses.
- You combined the use of your personal and company bank accounts.
- The industry in which your company operates carries a high risk of unreported income.
- Either a small group or a single individual handles the majority of the accounting required.
- Your reported business income is lower when compared to similar businesses in the same industry.
This verification technique goes beyond your records and books. It consists of a complete assessment of your way of living using accounting records and other useful information such as vehicle registration and land title information.
The CRA also verifies the financial records of your family members or contributing household members when it needs to. This shows a detailed financial picture of your house.