CRA indicates that the GST gross negligence penalty can be levied on amounts that are not attributable to gross negligence
Although the ETA gross negligence penalty has essentially the same precondition – referencing “knowingly, or under circumstances amounting to gross negligence, makes or participates in, assents to or acquiesces in the making of a false statement or omission in a return [etc.]” – as ITA s. 163(2), the mechanics of computing the penalty (of 25% rather than 50%) differ.
First, understatements of net tax, understatements of tax payable and overstatements of rebate claims are computed separately (in ss. 285(a), (b) and (c), respectively). “Net tax” is essentially the positive or negative difference between tax collectible (or collected) in the reporting period and input tax credits claimed, as adjusted for specific adjustments such as bad debt credits or rebate credits under ss. 231 and 232. In a recent Interpretation, CRA appears to contemplate that s. 285(b) refers (and perhaps only refers) to situations where there was tax that was required to be self-assessed (or otherwise paid directly to the government in the registrant’s capacity of purchaser or importer rather than of collection agent) but was not, e.g., in relation to imported taxable supplies, or real estate purchases. It thus would appear to be likely that CRA does not contemplate that there can be any double-counting as between ss. 285(a) and (b), which is what one would expect.
Second, in this Interpretation, CRA states that, in contrast to ITA s. 163(2):
paragraph 285(a) does not refer to the portion of the understated net tax amount that is attributable to the false statement or omission for the reporting period for calculating the penalty. Rather, it provides that if there has been a false statement or omission relevant to the determination of the net tax of the person, then the amount of the difference between the actual net tax and the amount that would be the net tax for the reporting period (no apportionment) based on the information provided in the return will be subject to the 25% calculation.
Thus, for example, if in its monthly return a registrant overstated ITCs by $10,000 in circumstances amounting to gross negligence and made an honest mistake that $100,000 was not collectible on what it thought was an exempt supply, the 25% penalty would be exigible on $110,000.
Neal Armstrong. Summary of 31 October 2016 Interpretation 164696 under ETA s. 285.