Indirect verification of income (IVI) is a family of audit techniques the Canada Revenue Agency uses to estimate income without relying solely on the taxpayer's books and records. The methods include the net worth method, the bank-deposit method, the source-and-application-of-funds method, and ratio or projection analysis.
The CRA typically turns to IVI where records are incomplete, unreliable, or suggest unreported cash. Because these methods produce estimates rather than direct measurements, they are open to challenge on their assumptions: opening balances, treatment of loans and gifts, double-counting of deposits, and personal-versus-business spending. Careful reconstruction of the underlying facts is central to disputing an IVI-based reassessment.