This decision is a forceful caution about the importance of keeping and getting documents to prove your true income and expenses.
Net worth assessments are the most costly and slow to challenge. If you don't have the business records, how can you convince the CRA's auditors or Appeals Branch officers, or the Tax Court that you reported your taxes rightly? Though the Tax courts have been clear that you don't need documents to prove your case, if you're credible, usually in these cases CRA has much evidence to undermine your credibility.
During the audit, the taxpayers gave the auditor "documents in [a] garbage bag [that] were not organized and the documents in the box were contaminated with mice droppings. Some of the documents in the box had been shredded by the mice. Even if the documents had been in good condition, there were no source documents given so that the revenue reported could not have been reconciled." (Para. 18)
In Court, the taxpayers "presented none of the source documents for the Company. They chose to challenge the assessments on the following bases ... (a) It was not necessary to perform a net worth analysis ... (b) The Company had insufficient cash sales to support the unreported income ..." (Paras. 15 ff.)
Justice Miller rejected almost all the taxpayers' arguments, almost wholly upheld the reassessments and affirmed the gross negligence penalties.
See Vicars v. The Queen, (2013 TCC, V. Miller)