Gross Negligence Penalty

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As Canadians get busy filing their taxes, the Canada Revenue Agency (CRA) reminds everyone to be cautious of fraudulent tax filing. 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.

If you are approached by a tax preparer offering larger refunds than other preparers, don’t be fooled! While the vast majority of preparers provide excellent service to tax filers, there are unscrupulous ones who file false and fraudulent tax returns— and in the end, it’s you, the client, who pays. The original tax owing plus a gross negligence penalty!

Be informed about who you are dealing with at tax time and what their credentials are.

Remember that even if someone else prepares your tax return, you are responsible for all the information on the return.

  • Be informed about who you are dealing with at tax time and what their credentials are.
  • Stay away from tax preparers who offer you false tax claims such as charitable donations, child care expense claims, or even business expenses or losses. Don’t get involved. You will be caught.
  • Get a second opinion. Taxpayers should seek independent advice from a reputable tax professional or contact the CRA Individual Income Tax Enquiries line at 1‑800‑959‑8281 for further information if they are thinking about taking part in such a scheme. Ask questions or enquire further before submitting your return.
  • Make sure the tax preparer gives you a copy of your return for your records.
  • Never sign a blank tax form.
  • Generally, if it sounds too good to be true, it probably is.

 

And recent court cases have held that having a respected accountant prepare your return does not relieve you of your responsibilities.  If you try to claim something that you know is inaccurate or even if you aren’t careful about what you give your accountant and you claim things you didn’t intend to, you cannot avoid responsibility and a possible gross negligence penalty may apply.  The courts are taking the position that you must be aware of what is in your return and what is being claimed. Taxpayers are responsible to review their returns before they are filed.

Due diligence can be as simple as a cursory, quick review of your return to ensure it makes sense.

Consequences

Failure to follow tax laws will result in serious consequences. 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. The gross negligence penalty can be applied even if it was a simple error or omission if in their view enough due diligence was not performed. Due diligence can be as simple as a cursory, quick review of your return to ensure it makes sense.

The CRA will also start criminal investigations and will recommend prosecution against the taxpayers promoting, organizing or participating in tax schemes.

If found guilty of criminal tax evasion, taxpayers face fines of up to 200% of the taxes they sought to evade plus potential jail time of up to five years.

If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.

Thanks to David Wickenberg of KWB Chartered Accountants for providing this content.

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