Taking Responsibility for Your Tax Returns
When it comes to your tax returns, the CRA holds you personally responsible for all the information disclosed on your return. Even if you hire professional tax accountants or a reputable tax preparation service to fill out the paperwork, you need to ensure that your tax return is completely accurate before you sign the papers. In fact, failing to disclose income could eventually lead to a hefty “gross negligence” penalty from the CRA.
This past summer, the Tax Court issued a “gross negligence” penalty on a taxpayer who failed to disclose almost $19 million in taxable dividend income on his 2007 returns. The CRA discovered the undisclosed income during an audit almost three years later. The defendant stated that he had trusted his tax accountants to correctly prepare his returns. For this reason, the taxpayer signed the tax returns without reading through the paperwork.
The issue that faced the judge was whether the taxpayer willfully did not take the time to review the returns before signing the official documents. The audit’s strong evidence showed that the taxpayer typically read and reviewed his previous tax returns with his accountants before signing them. However, with his 2007 returns, the taxpayer signed the documents quickly before leaving on a trip. In the end, the judge declared that the taxpayer’s usually careful tax return procedures demonstrated that his 2007 tax returns were actually completed with “gross negligence.”
The “gross negligence” penalty often requires the taxpayer to pay around 50 percent of the tax payable for the undisclosed income. On top of that, the original tax on the omitted income is due along with any additional interest incurred from the time of the original tax payment. Overall, it is extremely important to read and review your tax returns each year because the potential tax fines and penalties are just not worth it.