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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


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.


VAT news
VAT news