In Semenov v R, 2018 TCC 58, the CRA found unexplained deposits in the individual taxpayer’s personal bank account. The CRA applied a “deeming” rule to treat the amounts as unreported income subject to gross negligence penalties. The CRA applied another “deeming” rule to treat the income as unreported income of Opco for the purposes of gross negligence penalties (the individual was the sole shareholder of Opco and supposedly had no other source of income).
The Tax Court held that the CRA, while it could use assumptions to justify including an amount in a taxpayer’s income, could not use deeming rules or assumptions for the purposes of justifying gross negligence penalties.
See summary and comments by Robin MacKnight in “Facts, Not Assumptions: Penalty Relief for Taxpayers?” 18:3 Tax for the Owner-Manager (July, 2018).