CRA generally will not consider a due diligence defence in initially assessing a s. 163(1) penalty

CRA does not "routinely afford taxpayers the opportunity to make submissions on due diligence" before assessing a s. 163(1) (at least one repetition) penalty, so that such submissions are deferred until the Appeals officer review. At that stage, CRA will not waive part of the penalty: if due diligence is not established and the other conditions are satisfied, the penalty is assessed in full.

Neal Armstrong. Summary of May 2013 ICAA Roundtable, Q. 4 (reported in April 2014 Member Advisory) under s. 163(1).