Gross negligence penalties are imposed under subsection 163(2) of the Income Tax Act and are applied when the CRA can demonstrate that an individual “knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return.” These penalties can be severe: under the Act, the amount of gross negligence penalties are determined according to the amount of tax owing, to the tune of 50% of the amount of the tax owing.
If you have been assessed a gross negligence penalty, or are afraid that one may be in your future, there are a few things that you can do to either avoid it or get rid of it.
Firstly, if you know that you have unfiled returns or undeclared income which leave you vulnerable to gross negligence penalties it is best not to ignore or avoid it. Get to the CRA before they get to you by applying through the Voluntary Disclosure Program. This program exists to give taxpayers the chance to comply or resolve any tax issues they may have before the CRA becomes aware of them. If your application is accepted under the Voluntary Disclosure Program CRA you will be protected from penalties and prosecution. However, if you have been contacted and assessed a gross negligence penalty, this option is no longer open to you.
If you cannot apply for Voluntary Disclosure because CRA is already after you, but you have been assessed a gross negligence penalty that you believe to be incorrect, your next option is to file an objection. A Notice of Objection provides you with the opportunity to prove why you were not negligent and prompts the CRA to further investigate the situation.
Unless CRA has the evidence to prove that your actions were negligent, the objection could save you thousands. Additionally, once an objection has been filed all collection action ceases and the accrual of interest is halted.
It is very easy for CRA to assess you and apply gross negligence penalties – it is much more difficult to make them stick once an objection is filed because they have to be able to prove you were negligent or you can pursue your objection in tax court. Often, if they cannot prove that you were negligent, they will let go of the gross negligence penalties on objection.
Time is ticking. Your timeline is quite short – you only have 90 days after the day CRA sent a notice of assessment or notice of determination to file an objection. If you wish to file after 90 days you have 12 months to file an extension, but you have to meet strict requirements and there is no guarantee to receive approval.
Don’t ignore a penalty for gross negligence as these can be significant financial burdens. Take action to stop one before it begins or get rid of one if it already exists. Contact Tax Solutions Canada today for more information: 1-888-868-1400, or visit us online at www.taxsolutionscanada.com.