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Understanding Gross Negligence Penalties: How They Work and How to Defend Against Them

  • Gross Negligence Penalties are meant to punish taxpayers for failure to report income or claiming false credits
  • The penalty adds 25% or 50% to any balance owing, depending on whether it is GST/HST or Income Tax related
  • The Canada Revenue Agency (CRA) must prove that taxpayers knowingly made false statements or made those false statements under circumstances of gross negligence
  • The burden of proof is on the CRA to justify the application of Gross Negligence Penalties
  • The Income Tax Act imposes a 50% penalty on top of the balance owing for gross negligence
  • The Excise Tax Act imposes a penalty of $25,000 for gross negligence related to GST/HST
  • Arguments against Gross Negligence Penalties include reviewing audit working papers, claiming actions did not amount to gross negligence, and using jurisprudence to show the penalty is not justified
  • SpenceDrake Tax Law can help argue against the assessment of Gross Negligence Penalties and fight the CRA

Source: sdtaxlaw.ca

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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