Income Tax Act Subsection 163(2), 163(3)
If you, knowingly or under circumstances amounting to gross negligence, made a false statement or omission on your tax returns, the Canada Revenue Agency (“CRA”) may charge you with a penalty.
The penalty is equal to the greater of:
- $100; and
- 50% of the understated tax and/or the overstated credits related to the false statement or omission.
However, if you come forward voluntarily through the Voluntary Disclosures Program, the CRA may waive the penalties charged.
To impose a gross negligence under section 163(2) of the Income Tax Act, the CRA must demonstrate that the incorrect statements were made either:
- knowingly; or
- under circumstances amounting to gross negligence.
Knowingly means either the act was done intentionally, or the act was done while being willfully blind. Willful blindness means that the error was so blatant, that you chose to ignore it. This typically occurs with cases of fraudulent filing, and the de-taxers. Taxpayers should be aware that trusting an accounting by no means stops the CRA from imposing gross negligence penalties.
“Under circumstances amounting to gross negligence” is defined in case law. Gross negligence must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, and indifference as to whether the law is complied with or not.
Subsection 163(3) of the Income Tax Act states that this is such a harsh penalty, so much so that the burden of proof switches from the taxpayer to the CRA. What this means is that it is usually up to the taxpayer to prove their deductions, credits, etc. Well in this case, the CRA must prove that the gross negligence penalties are justifiable.
Being assessed gross negligence penalties can devastate families, and businesses. If you have been assessed with gross negligence penalties, or fear you might, you should seek legal assistance immediately.
CRA Resources
Case law
Venne v. the Queen, 84 DTC 6247 (FCTD), [1984] C.T.C. 223.
Morton v The Queen, 2014 TCC 72 – Gross Negligence or Knowingly Making False Statements
Torres v. The Queen, 2013 TCC 380 – Willful Blindness (https://www.canlii.org/en/ca/tcc/doc/2013/2013tcc380/2013tcc380.html?searchUrlHash=AAAAAQASZmlzY2FsIGFyYml0cmF0b3JzAAAAAAE&resultIndex=4)
More detailed case law analysis may be found here: http://ita-annotated.ca/RecentDecisions/category/substantive-provision/gross-negligence-penalties/