Are owner-manager shareholders more likely to incur gross negligence penalties?

Are owner-manager shareholders more likely to incur gross negligence penalties?

Struck v. The Queen, 2017 TCC 94
A business owner of a residential rental company and his father challenged an assessment including gross negligence penalties. Struck's father gave him all of his shares in the company before the tax years at issue, making Struck the sole shareholder.

Multiple problems occurred in the tax years at issue. Struck’s company issued three separate cheques payable to Struck himself. The company also made mortgage payments on Struck’s personal residence. Struck could not show these payments were for a business purpose. Struck's company gave his father advances on a company mortgage. Struck could not show these were payments were for a business purpose either. The Court ultimately found Struck grossly negligent under subsection 163(2).

The Court pointed out that Struck was the sole shareholder, that he was responsible for preparing the company books, and that Struck had plenty of business experience in its finding of gross negligence.

Tax Foresight Case Analysis

  • Running Struck through Tax Foresight yields several insights. Our algorithm correctly predicts the outcome with 73% confidence.
  • Removing Struck’s business experience, Tax Foresight predicts gross negligence with 67% confidence.
  • If Struck sought professional advice, Tax Foresight predicts Struck would have been not grossly negligent with 89% confidence.

Gross Negligence Insights

  • The Tax Court has never found a person incapacitated with a mental illness to be grossly negligent.
  • Over 500 cases address gross negligence under subsection 163(2). In 2016 alone, 26 new gross negligence cases were decided. Over half of the cases are from the year 2000 or later.
  • Each time you run our gross negligence classifier you apply the entire body of case law to your client's situation. 

 

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