Strong Internal Accounting: Gross Negligence Penalties

A January 6, 2026 Tax Court of Canada case examined more than $6.4 million of unreported revenue over two taxation years.

CRA identified the amounts through a bank deposit analysis. More than $1.7 million of the discrepancy resulted from a failure to translate foreign-currency revenues into Canadian dollars.

CRA reassessed the taxpayer beyond the normal reassessment period and imposed gross negligence penalties.

What Went Wrong?

The business owner and manager was well educated, holding both a commerce degree and a chartered accountant designation.

He believed that the company's accounting software automatically converted foreign currency into Canadian dollars. The court found that relying on this assumption was not sufficient.

The court noted that the weakening Canadian dollar during the years in question should have made the reporting discrepancy apparent.

More importantly, both the owner and the employee responsible for accounting knew they were overwhelmed, yet the business chose not to bring in additional accounting resources.

Taxpayer Loses

The court concluded that the underreported revenue constituted a misrepresentation.

The failure to obtain adequate accounting support despite knowing that existing resources were insufficient demonstrated an indifference to tax compliance.

This was sufficient to permit CRA to reassess outside the normal reassessment period and supported the finding of gross negligence.

Action: Ensure that sufficient internal accounting and bookkeeping resources are available. Inadequate accounting support can result in errors, extended reassessment periods and gross negligence penalties.