... CRA Extensions v1.1. The CRA can assess a gross negligence penalty if a taxpayer “knowingly … has made … a false statement … in a tax return.” The judge noted that it was clear that by claiming numerous non-existent or personal expenses as business expenses, that false statements were, indeed, made by the taxpayer in her 2010 and 2011 tax returns. Although the ETA gross negligence penalty has essentially the same precondition – referencing “knowingly, or under circumstances amounting to gross negligence, makes or participates in, assents to or acquiesces in the making of a false statement or omission in a return [etc. Gross negligence penalties. Chartrand found himself in Tax Court because CRA not only denied his nearly $547,000 of fictional business expenses, but also hit him with a federal gross negligence penalty of nearly $55,000, in addition to provincial penalties, plus interest. The … So if you claimed a refund of $10,000 to which you were not entitled, the gross negligence penalty would be for $5,000. In a typical tax dispute, the burden of proof is on the taxpayer to demonstrate that their tax return is correct. Under the Income Tax Act, the CRA may charge the greater of either $100 or 50% of the amount of understated tax as a Gross Negligence penalty. Although the ETA gross negligence penalty has essentially the same precondition – referencing “knowingly, or under circumstances amounting to gross negligence, makes or participates in, assents to or acquiesces in the making of a false statement or omission in a return [etc. Lata culpa, or, as the Roman lawyers most accurately call it) dolo proxima, is, in practice, considered as equivalent to dolus or fraud itself, and consists, according to the best interpreters, in the omission of that care which even inattentive and … Income tax is nothing more than a tax on income. In order be assessed a penalty under section 163 of the Income Tax Act (“The Act”) the CRA must prove that (1) the taxpayer made a false statement or omission in their income tax return, and (2) that the statement or omission was either made knowingly, or under circumstances amounting to gross negligence. the CRA has published a list of factors that should be considered by an auditor prior to issuing a gross negligence penalty assessment. Gross negligence penalties may also apply for making a false statement, omission or failure to file. Gross negligence is an objective test. Gross negligence is of course negligence but certainly a notch higher than ordinary negligence. Given this potential increased pervasiveness and the significant financial implications, taxpayers should be aware of how to avoid gross negligence penalties and, if necessary, successfully refute them. CRA charges interest on these penalties, and on the additional tax, dating back to the year that they believe the tax should have been reported and paid. Gross negligence is a conscious and voluntary disregard of the need to use reasonable care,which is likely to cause foreseeable grave injury or harm to persons,property, or both. At the time I was hired, it was to be one of the very first auditors for a brand-new tax, the goods and services tax (GST). + 1 613-747-2459 ext.310 If you wish to discuss your issue with a lawyer, contact Dean Blachford today. Gross negligence is the "lack of slight diligence or care" or "a conscious, voluntary act or omission in reckless disregard of a legal duty and of the consequences to another party." Most personal injury cases involve some kind of claim of negligence.Negligence, in general, is any carelessness that results in some kind of injury or damage. Wilful blindness is where a taxpayer knows they should ask further questions, but does not because they do not want to know the answers. Whereas the TAA uses the concept of 'gross negligence', the ATO in MT 2008/1 refers to 'recklessness'. There is no fixed set of criteria for determining whether there is gross negligence or wilful blindness. Alexander Krush, Articling Student. If you have been assessed with gross negligence penalties, or fear you might be, you should seek legal assistance immediately by giving us a call today. Ultimately, there is no bright-line test for whether a taxpayer has acted with gross negligence. 50% of the understated tax and/or the overstated credits related to the false statement or omission. The phrase “gross negligence” as used in subsection 163(2) of the Income Tax Act was considered in the widely adopted decision of Venne v. The Queen, 84 DTC 6247 (FCTD), where the Court states: . If you have specific legal questions you should consult a lawyer. The CRA will audit, reassess and can apply a gross negligence penalty equal to 50% of the additional tax payable if it can show that a taxpayer knowingly, or under circumstances amounting to gross negligence, made a false statement when filing a return. Jeff advises clients in all aspects of domestic and international taxation while specializing in complicated tax matters. Gross negligence penalties are imposed under subsection 163(2) of the Income Tax Act or under section 285 of the Excise Tax Act. The salient facts in Knight were as follows. How to Calculate CRA Penalty and Interest – Gross Negligence Penalty. Gross Negligence is also the same thing; it is the degree of negligence that will make the difference. It is pretty interesting how CRA auditors are so quick to criticize Canadians for what is called, "Gross Negligence," yet they can screw up worse, and still think they don't have a duty of care. The CRA audited a number of high net-worth individuals who had a history of paying low income tax. At the very least, CRA said the taxpayer “was willfully blind regarding the fraudulent scheme engaged in by his tax preparer.” The decision The penalty is equal to the greater of: $100; and. The gross negligence penalty One of our tools at our disposal was a tool called gross-negligence penalty, which was a special penalty equal to 25% of tax assessed, on top of the regular 6% penalty. Lacroix v. Canada, 2008 FCA 241 – Gross Negligence and Reassessment Periods (Statute Barred), Therrien v. The Queen, 2002 CanLii 781 – Gross Negligence or Knowingly Making False Statements, Lauzon v. The Queen, 2016 TCC 71 – Willful Blindness. In addition to closing their offices to the public six years ago, CRA is trying to squeeze more out of its audits. The financial impact of these penalties can be staggering. The CRA felt that the taxpayer’s “lack of careful review of the return,” her failure to disclose unjustified carry forwards of donation expenses, the double counting of one large charitable receipt, and the inclusion of the employment expense deduction where no receipts existed and where no T2200 … When the CRA conducts an audit and believes that the taxpayer intentionally under-reported their taxes, they will assess the taxpayer a gross negligence penalty. There are a number of situations where an individual or a company can be charged penalties and interest by the CRA. , Such reliance, however, does not eliminate the responsibility of a taxpayer for the accuracy of their own tax filing. It is conduct that is extreme when compared with ordinary Negligence, which is a mere failure to exercise reasonable care. Gross negligence is behavior that can be regarded as reckless and which disregards the safety of others. 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