Gross negligence penalty

What the penalty covers

The CRA can charge this penalty when a return contains a false statement or leaves something out, and the CRA concludes it was done knowingly or in circumstances amounting to gross negligence. On a personal return, the amount is whichever is more: $100, or 50% of the understated tax or overstated credits (or both) tied to that statement or omission.

The penalty is tied to knowing or grossly negligent conduct, which is a higher bar than an ordinary error, so an honest arithmetic slip is generally a different matter. Whether the bar is met in a given case depends on the facts, and the CRA makes that judgment.

An illustrative example

Imagine, with round numbers, a return that claims $10,000 of business expenses for a personal renovation, with no receipts, and the CRA concludes the claim was knowingly false. If the extra tax from that claim were $3,000, half is $1,500, which is more than $100, so $1,500 would be the penalty in addition to the tax and interest. The same $10,000 claimed in good faith for a genuine but poorly documented expense would raise a different question: whether it is deductible, not whether a penalty is warranted. These numbers are illustrative only.

Who is responsible for what is on the return

You are generally responsible for what is on your return, including when a preparer completes it, so read it before it is filed. If a preparer made a claim without your knowledge, that raises separate questions, so keep your engagement letter and the information you provided. Keep the slips and receipts behind every deduction and credit you claim, because documentation is what separates a disputed claim from a false one.

If you are assessed this penalty

Read the notice to see which amount is penalized and why. If you disagree, the usual route is a notice of objection, filed before the deadline on the notice. If you discovered the problem yourself before the CRA contacted you or a related person, the Voluntary Disclosures Program may allow penalty relief. This penalty is different from the repeated failure to report income penalty, which applies to a pattern of omissions.

What to discuss with your accountant

Bring the notice, the return, the supporting records and any correspondence with the CRA or a preparer. Ask whether the facts support an objection, whether other years carry the same issue and whether a disclosure is still open. Get advice before replying to the CRA in writing.