Gross Negligence Penalties (GNPs) are devastating—adding a 50% surcharge on income tax or 25% on GST/HST. As the CRA aggressively hands them out, taxpayers face immense financial risk.
However, GNPs carry a critical legal distinction. Unlike standard audits, the burden of proof for GNPs is on CRA, not the taxpayer.
Our 4 Steps to beating the GNPs
In a recent case, we helped a client overturn a massive GNP assessment by challenging the auditor’s Penalty Report:
Dissecting the Penalty Report: CRA auditors must justify GNPs in a formal report, which frequently contains flawed logic or invalid factual assumptions.
Exposing Rule Complexity: The error involved complex GST/HST self-supply rules. We showed how the CRA's own previous correspondence cited the wrong legislation, demonstrating that the taxpayer’s own mistake was therefore reasonable.
Demonstrating Good Faith: We established the taxpayer engaged a CPA and attempted to report accurately, disproving the auditor’s assertion that the taxpayer intentionally omitted the self-supply.
Capitalizing on CRA Missteps: We held the CRA to their strict burden of proof when the auditor improperly relied on assumptions in the Penalty Report.
The result? The CRA Appeals division agreed with our submission and issued our client a $103k refund cheque for the previously assessed GNPs.
In my latest video, I break down how GNPs work and the strategic framework we use to defeat them.