" In 2009 the Applicant pled guilty to wilfully evading payment of income taxes by failing to correctly report taxable income for the 2001 and 2002 taxation years. He was sentenced in provincial court to a fine and one year of probation."
Mr. Higgins, in a bold move, sought two levels of CRA review of his request for interest and penalty relief. Originally, he based his request on financial hardship and a denial that he had been grossly negligent. But later, he restricted his plea to financial hardship and CRA mistreatment. (Paras. 5-6.)
CRA found several inconsistencies in Mr. Higgins's representation of his case but most important, the reviewer found:
"there was no evidence of financial hardship: the Applicant’s assets exceeded his liabilities including tax liability; mortgage expenses were overstated; only a small amount of tax liability was paid from a signing bonus; RRSP funds were withdrawn but no amount went to the tax liability; and no information was filed regarding the income of the Applicant’s wife and share of household expenses." (Para. 7.)
"The Delegate also considered the failure to accurately report income for 9 of the 13 years between 1991 and 2004." (Para. 8)
For obvious reasons, that was enough for CRA to refuse relief. The reviewer ignored the fact that Mr. Higgins had been convicted of tax evasion before, in 1996. (Para. 9)
Before the Federal Court, Mr. Higgins complained "that CRA took too long to address his 2nd level complaint." But Justice Phelan found nothing procedurally unfair in CRA's conduct, noting that there were good reasons for the delay. (Para. 12.)
Mr. Higgins's request seems to have had no merit at all. But the case does show that CRA might agree to waive penalty or interest even in cases of gross negligence. That said, you'd need to show real financial hardship and even then, CRA's policy (though officers are not bound to follow it) is against waiver for financial hardship unless you also show some extraordinary circumstance prevented compliance.
Of gross negligence penalties, CRA says, in para. 37 of its information circular IC-07 on Taxpayer Relief Provisions:
"However, since the levy of these penalties indicates a degree of negligence and absence of care and diligence on the part of the taxpayer in the conduct of their tax affairs, the cancellation of a gross negligence penalty may be appropriate only in exceptional circumstances."
See Higgins v. Canada (Attorney General), (2014 FC Phelan)