Section 220

Following the Sommerer decision, which caused a tax plan to cease to work, the Minister assessed trusts on the basis that dividends paid by corporations to trusts (which had been anticipated to be received free of tax) were taxable. In finding that the Minister was bound to take this action, Brown J stated (at paras. 25-26):

By s. 220(1) of the Act, Parliament has imposed upon the Minister a duty (“[t]he Minister shall”) to “administer and enforce” the Act. No discretion is afforded the Minister or the Minister’s agents: “They are required to follow [the Act] absolutely, just as taxpayers are also required to obey it as it stands” (Harris … .

[T]he Minister was bound to apply Parliament’s direction in the Act, as interpreted by a court of law, unless and until that interpretation is judged to be incorrect by a higher court.

The petitioners, who as mortgagees had foreclosed on properties of non-resident debtors, petitioned by Court for a declaration that a purchaser acquiring the property from them would not thereby be acquiring the property from a non‑resident person so that for the purpose of s. 116(5), such property would not be "acquired from a non‑resident person." In this regard they relied (para. 25) on the proposition that “foreclosure law in British Columbia makes clear that upon a foreclosure, the mortgagee holds the legal estate to the land, subject only to the mortgagor's right of redemption, and so the mortgagee, not the mortgagor, is the vendor of the property to a subsequent purchaser.”

In finding that he lacked the jurisdiction to make this declaration, Macintosh J stated (at paras 9, 28):

If the requested declarations are to have any practical effect, the Petitioners intend that they would bind the Minister of National Revenue in her administration and enforcement of the ITA pursuant to s. 220(1) of that legislation.

[quoting at para. 15 from Felsen Foundation v. Jabs Construction, 98 D.T.C. 6454 (BCSC) at para. 7:] “This Court is not in the business of deciding issues solely for the purposes of instructing other courts."

… The petitions before me are directed exclusively at the interpretation of the Income Tax Act for the sole eventual purpose of determining whether there needs to be a remission to the Receiver General of the 25 per cent tax applicable to non‑residents under s. 116(5) of the ITA.

The Minister has the power to enter into arrangements to give a taxpayer time for the payment of taxes which are currently due or, in this case, permitting the taxpayer to satisfy the Minister that Part VIII tax obligations of the taxpayer will be eliminated by year-end.

In 1998, the appellant entered into a departure trade transaction with a Canadian bank (“CIBC”), which was designed to create an interest deduction to reduce the tax payable by him under s. 128.1(4) on his emigration from Canada. He borrowed $695 million from CIBC so as to generate an interest deduction for the period prior to the departure, with the borrowed money simultaneously being reinvested with CIBC – but with the return thereon not being taxable to him prior to his departure due to the reinvestment occurring “through” intermediate Caymans companies who issued preferred shares rather than debt to him.

In 2002, his 1998 return was reassessed to deny the $47 million interest deduction claimed therein and to increase the reported capital gain arising under s. 128.1(4). In May 2006, his 1999 return was reassessed to include over $54 million in income based on the view that he had not ceased to be a Canadian resident in 1998, contrary to the s. 128.1(4) reassessment in 2002. In June 2006, the Tax Court upheld the Minister’s denial of interest deduction in another departure trade case (Grant), subsequently affirmed. In 2010, the appellant settled his claim on the basis that he was not entitled to the interest deduction (as in Grant).

The appellant requested interest relief for the period from the 1999 reassessment to either the final disposition of Grant by the Supreme Court or the date of the final settlement agreement. In affirming the decision below that the decision of the Minister’s delegate to deny such relief had not been established to be unreasonable, Near JA first stated (at para. 6)

We are unconvinced that the inconsistent reassessments were extraordinary circumstances or outside the appellant’s control. While the appellant was subject to the Canada Revenue Agency’s (CRA’s) policy of not making downward assessments until the upward assessment was resolved, this did not prevent him from beginning to address his tax debt.

He went on to note that the appellant had failed to address CRA’s request for additional information to determine whether (as reflected in the 1999 reassessment) he in fact had remained a resident of Canada.

Near JA further stated (at para. 7):

In addition, the appellant has not established that there was undue delay by the Crown or CRA. The appellant suggests that his matters were “effectively” held in abeyance pending Grant, but offers no evidence that any such agreement existed or, more importantly, would have the effect of suspending interest. … Telfer … stated that a taxpayer who knowingly fails to pay a tax debt pending a decision in a related case “normally cannot complain that they should not have to pay interest” …. . [T]he appellant had a number of options available to reduce his interest exposure.

In 2015, Bonnybrook, a private corporation, disclosed unreported income under the voluntary disclosure program by filing income tax returns for its 2003 and subsequent taxation years. In assessing these returns, the Minister denied its claim for dividend refunds for the 2003 to 2011 taxation years on the basis that Bonnybrook had not filed those returns within three years as required by s. 129(1). Bonnybrook then applied for relief under s. 220(2.1) (for a waiver of the s. 129(1) requirement to file a corporate return within three years), under s. 220(3) (for an extension of this three-year deadline) and under s. 220(3.1) (for relief from penalties and interest). The Minister’s response ignored the s. 220(2.1) request and denied the s. 220(3) request for conclusory reasons.

In finding (at para 19) that the Federal Court below had erred in finding that it lacked jurisdiction to review these decisions of the Minister, Woods JA stated:

The Tax Court’s jurisdiction is limited by statute, and in income tax matters its jurisdiction is generally limited to hearing appeals concerning the correctness of assessments. Its jurisdiction does not extend to judicial review of decisions of the Minister under discretionary relief provisions of the Act … .

Respecting the failure of the Minister to consider the s. 220(2.1) request, Woods JA stated (at para. 30):

There is no evidence that the Minister gave any consideration to the request for a waiver pursuant subsection 220(2.1). In light of this, it is appropriate to remit the matter back to the Minister for consideration.

The taxpayer (“ConocoPhillips”) claimed that it did not learn about a reassessment of its 2000 taxation year (which nullified a previous reassessment for the same year which it had validly objected to) until more than a year after it had been mailed. Its Notice of Objection to the subsequent reassessment was rejected by the Minister on the grounds of untimeliness. In addition to other proceedings (see the FCTD summary), ConocoPhillips requested that the Minister waive, pursuant to s. 220(2.1), the requirement to file a notice of objection in respect of its 2000 taxation year, which the Minister’s delegate denied on the basis that “the Minister does not have the discretion under subsection 220(2.1)… to waive the obligation to serve a notice of objection.”

In reversing the finding of Boswell J below that the Minister indeed had such discretion, Woods JA stated (at paras 41, 42):

The Minister is prohibited by the statute from granting an extension unless the conditions specified in subsection 166.1(7) have been satisfied. …

… [T]he Minister may not extend the time under this provision unless the application has been made within one year. This condition is strict, and it could lead to unfairness, but it is clear from the detailed language of the provision that this is intentional.

Woods JA further found (at paras 47, 48 and 52):

The relief that ConocoPhillips seeks is to use the general waiver provision in subsection 220(2.1) … in order to engage the objection process without having to comply with its statutory conditions. The effect of the application of subsection 220(2.1) in this manner would give the Minister a power that the Minister has been denied in a detailed provision in subsection 166.1(7).

The general waiver provision cannot be applied in this manner to override a more specific provision. …

... Parliament did not intend that subsection 220(2.1) act as a safety value for objections. A taxpayer is intended to be either in or out of the objections regime.

The taxpayer (“ConocoPhillips”) claimed that it did not learn about a reassessment of its 2000 taxation year (which nullified a previous reassessment for the 2000 year which it had validly objected to) allegedly mailed on November 7, 2008 until April 14, 2010. Its Notice of Objection dated June 7, 2010 was rejected by the Minister on the grounds of untimeliness, and a decision of the Federal Court (2013 FC 1192) setting aside the decision of the Minister not to consider the objection was reversed by the Federal Court of Appeal (2014 FCA 297) on the grounds that its proper recourse was to appeal to the Tax Court under s. 169(1)(b) and demonstrate that its notice of objection was filed on a timely basis. Meanwhile, ConocoPhillips requested that the Minister, under s. 220(2.1), waive the requirement to file a notice of objection in respect of its 2000 tax year, which the Minister’s delegate denied on the basis that “the Minister does not have the discretion under subsection 220(2.1)… to waive the obligation to serve a notice of objection.”

In finding that the Minister had such discretion under s. 220(2.1), and before directing that the Minister reconsider the requested waiver, Boswell J stated (at paras. 49, 56):

The Minister’s arguments as to differences between the use of the word “file” [in s. 220(2.1)] and “serve” [in s. 165(1)] are not persuasive. The fact a notice of objection may be served should not prevent subsection 220(2.1) from applying to notices of objection. …

[T]he purpose of subsection 220(2.1) is to blunt the unfairness that sometimes arises by strict application of the filing and notice requirements in the ITA. The Minister’s discretionary power under subsection 220(2.1) should not be unduly limited or fettered through an unduly narrow interpretation which the Minister unreasonably adopted and applied in this case. …

Respecting an argument of the Minister (at paras. 57-58) that “subsection 165(3) explicitly requires a notice of objection before there can be a reassessment” and that “the discretion to waive a notice of objection under subsection 220(2.1) would be nonsensical due to lack of a remedy,” he stated (at paras. 58-59):

Subsection 165(3) does not state that without a notice of objection, the Minister shall not or cannot reconsider an assessment, and there are situations under the ITA where the Minister is explicitly given the power to reassess without a notice of objection. …

Moreover, subsection 220(2.1) specifically enables the Minister to request a document that has been waived. If the Minister does waive the requirement for a notice of objection, a notice of objection could subsequently be requested by the Minister and a reassessment could occur. …[S]hould the Minister in this case unreasonably refuse to exercise her jurisdiction and authority to waive the requirement for a notice of objection, ConocoPhillips could then challenge that refusal by way of judicial review in this Court.

S. 47(1) of the Income Tax Act (BC) provided that s. 220(2.1) of the Act applied for the purposes of the former Act. The Minister was not permitted to revoke a waiver given by the Calgary office to the taxpayer on the basis that the waiver should have been given by the Vancouver office.

For its 2003 to 2015 taxation years, the taxpayer (“Bonnybrook”) did not file corporate tax returns and, consequently, was not entitled to receive dividend refunds. The Minister’s denial of Bonnybrook’s initial application in May 2016 for relief (which was based on the sole director of Bonnybrook having serious health issues for many years) was found at 2018 FCA 136 to be based on the incorrect view that s. 220(3) does not accord the Minister the discretion to extend the limitation in s. 129(1) in order to obtain the dividend refunds. In 2019, the Minister requested and received details of the director’s health problems. In the reconsideration decision at issue, the Minister acknowledged that the health issues were serious but concluded that taxpayer relief was not warranted because the director was capable of arranging for assistance in filing the returns and should have done so if she was not capable of preparing the returns herself.

In finding that there were no reasonable grounds for interfering with this decision, Woods JA indicated inter alia:

• that in order for the Minister’s decision to be reasonable “the outcome should be considered in light of the underlying rationale to ensure that the decision as a whole is transparent, intelligible and justified” and that the decision satisfied those requirements (para. 12).
• “The fact that the Minister did not discuss the harshness of the tax result does not mean that it was not considered and does not render the decision unreasonable.” (para. 15)

The taxpayers, who were residents of Bermuda owning a Canadian rental property, filed their returns for 2018 under s. 216 nine days after the filing deadline (which was six months after the taxation year end as a result of their having given undertakings under s. 216(4).) In requesting an extension to this deadline under s. 220(3) they alleged that CRA had misapplied their withholding tax payments to their general account rather than their non-resident account, and that much of their delay in filing their returns was attributable to their holding off on filing their returns (with some encouragement from their accountants) until this error was remedied (and they also proffered an excuse of sorts for the remaining portion of the delay).

Before returning the CRA rejection of their extension request (the “Decision”) for redetermination by another decision maker on the basis that (to quote Vavilov) the Decision did not “exhibit the requisite degree of justification, intelligibility and transparency” (quoted at para. 19), Go J stated (at paras. 34, 37):

No mention was made of the Applicants’ argument about the error made by the CRA in allocating withholding tax remittances to the wrong account or the delay by CRA in remediating the problem with the remittances. It may well be the case, as the Respondent submits, that the error in the tax remittances was not made by the CRA or alternatively, notwithstanding the error made, that the Applicants could have filed the NR Returns before the filing deadline. However, that was not stated in the Decision.

… It is unclear from the Decision what, if any, factors have been considered [by the decision maker] … in this case.

In 2008, the taxpayer transferred five properties to his corporation and did not report any disposition or gain in his return. Following a reassessment of these transfers by the ARQ in 2015, CRA also reassessed him in 2015. The Minister’s delegate denied the taxpayer’s request (made thereafter) to allow a late-filed s. 85 election on the basis that (para. 10):

(1) the sales contracts did not contain any clause allowing for a rollover under subsection 85(1) of the ITA; (2) the Corporation’s financial statements as of March 31, 2009, do not mention the acquisition of property for the agreed amount of the late election and there was no Schedule 8 for the depreciable property acquired; and (3) no document such as the Corporation’s minutes were provided to the ARQ auditor despite several requests to this effect.

The taxpayer acknowledged these deficiencies (as well as to there being no change to the issued share capital of the corporation) but argued that consideration should have been taken of the errors and failures of his advisor. Roussel J held (at para. 35):

Considering that no evidence was presented to show the initial intention to proceed by rollover under subsection 85(1) of the ITA and that the errors of a third party do not constitute circumstances that justify a late election, it was open to the Minister’s representative to exercise her discretion to deny Mr. Masson’s late election.

In 2015, Bonnybrook, a private corporation, disclosed unreported income under the voluntary disclosure program by filing income tax returns for its 2003 and subsequent taxation years. In assessing these returns, the Minister denied its claim for dividend refunds for the 2003 to 2011 taxation years on the basis that Bonnybrook had not filed those returns within three years as required by s. 129(1). Bonnybrook then applied for relief under s. 220(2.1) (for a waiver of the s. 129(1) requirement to file a corporate return within three years), under s. 220(3) (for an extension of this three-year deadline) and under s. 220(3.1) (for relief from penalties and interest). The Minister’s response ignored the s. 220(2.1) request and denied the s. 220(3) request for conclusory reasons (it was the Minister’s position that s. 220(3) was not available for refund applications).

In finding (at para 19) that, contrary to the finding below, that the Federal Court had jurisdiction to review these decisions, Woods JA stated:

The Tax Court’s jurisdiction … is generally limited to hearing appeals concerning the correctness of assessments. Its jurisdiction does not extend to judicial review of decisions of the Minister under discretionary relief provisions of the Act … .

After determining to remit the s. 220(2.1) matter back to the minster for consideration, Woods JA then turned to the s. 220(3) decision and, after noting the position in 2013-0499421I7, stated (at paras. 40, 42, 45):

The CRA’s view … is that the taxpayer relief provisions cannot affect a filing requirement which restricts the issuance of a dividend refund. The problem with this reasoning is that this is exactly what the taxpayer relief provisions are intended to do — enable the Minister to provide relief from strict filing requirements.

Subsection 220(3) of the Act provides the Minister with a broad discretion to extend the time to file a “return”. …

It is also useful to note that the CRA has authorized waivers that are conditions to obtaining a benefit.

Woods JA concluded (at para 65), with Near JA concurring:

I would allow the appeal, set aside the judgment of the Federal Court, allow the application for judicial review, and set aside the Minister’s decision. I would refer the matter back to the Minister to consider Bonnybrook’s application for relief under subsections 220(2.1) and 220(3)… .

In his dissenting reasons, Stratas JA stated (at paras 72, 74, 93 and 95):

The Minister has asserted a position concerning subsection 220(3) but … has not offered meaningful or coherent reasons in support of that position….

My colleague’s response to this is to interpret subsection 220(3) herself in the course of conducting reasonableness review, in effect doing the job of statutory interpretation and reasons-writing that the Minister should have done. On this … I decline to join her.

[F]aced with a silence whose meaning cannot be understood through legitimate interpretation, who am I to grab the Minister’s pen and “supplement” her reasons?…

…I would remit [the s. 220(3) matter] to the Minister for full consideration and decision. …

In 1057513, Webb JA found that a corporation was ineligible for dividend refunds for various years because it did not file the returns claiming the dividend refunds within three years of the taxation year-ends in question as required under s. 129(1).

Binder Capital sought extension of the three-year deadline on the basis of extenuating circumstances explaining its delay in filing returns, and submitted that the discretion accorded to the Minister under s. 220(3) to extend a return-filing deadline impliedly accorded the Minister the discretion to extend the s. 129(1) 3-year deadline. In denying this request, CRA applied its position in 2011-0426331E5 that:

Although subsection 220(3) of the Act provides the Minister with the discretion to extend the time for making a return of income, this discretion does not extend to the filing deadline in subsection 129(1) of the Act… Subsection 220(3) does not alter or affect whether a corporation has factually filed its return of income within the period required under the Act.

In dismissing Binder Capital’s application to overturn this decision, Campbell J stated:

[W]hether the Minister’s discretion applies to s. 129 is a jurisdictional question with respect to an interpretation of the ITA which is not within this Court’s authority to decide.

The Minister had previously accepted the taxpayers' late-filed elections under s. 216(4). The taxpayers had believed they were entitled to file late because they had no taxable income in the years in question. The Minister then rejected one of the late-filed elections, and rejected the taxpayer's application for a discretionary extension of time.

Joyal J granted the taxpayer's application to have the matter sent back to the Minister. An extension of time is not confined only to circumstances that preclude a taxpayer from complying with deadlines (i.e. extraordinary circumstances). It is therefore no answer to an extension application to say that the election was filed late, as this is merely begging the question.

The taxpayer requested interest relief under s. 220(3.1) primarily based on his inability to pay due to financial hardship resulting from his divorce, the 2008 economic downturn, and the COVID-19 pandemic. The decision of the CRA reviewing officer to provide only very limited relief was found by Fothergill J to be unreasonable because the officer failed to engage with these submissions, so that the application for judicial review was allowed.

The applicants were an Alberta oilfield service company and a trucking company, each owned equally by Mr. Schnell and his spouse, and directed by him. In order to semi-retire, Mr. Schnell in 2012 hired Chris Challis as the CEO of both companies, and a CFO. Mr. Challis ran these successful companies into the ground within a few years. Furthermore, employees, including the accountant and the CFO, deceived Mr. Schnell in order to conceal emerging problems and the incompetence of the new CEO. Mr. Schnell only became aware of the companies’ failures to make the required remittance in May 2018, whereupon he fired the CEO and CFO, retook control of the companies, entered into a payment arrangement with CRA in April 2018, leveraged his personal assets and finances, and made full payment of the liabilities by January 2020.

The Minister denied the companies’ applications for relief from interest and penalties accrued during their 2014 through 2020 taxation years, made on the basis of “extraordinary circumstances leading to … financial hardship.” CRA granted relief only from interest assessed during the CRA approved payment arrangements. Otherwise, relief was denied largely on the basis that “the director remained responsible to take the necessary measures … to ensure that all obligations [were] met when required” and failed to do so, and also relief was denied under the financial hardship ground as the appropriate financial arrangements to pay the arrears including borrowing and restructuring finances to retire the debt had been made.

Zinn J found this decision to be unreasonable, so that it was quashed and the requests for relief remitted to a different decision maker. First, the CRA finding that it was within the companies’ control (or, to be more precise, within the control of Mr. Schnell as director) to avoid the late remittances did not address the active concealment by Mr. Challis and other employees of the late remittances from Mr. Schnell.

Second, regarding a CRA finding “that extraordinary circumstances cannot persist over several years”, Zinn J stated that “[t]here is no temporal limitation on extraordinary circumstances” (para. 56).

Third, it was evident that the consequences of Mr. Challis’ actions did not immediately end with his firing (the companies simply did not have the financial resources to make the necessary payments after such firing) and CRA’s finding to the contrary was unreasonable.

The taxpayer’s request for waiver of interest and penalties regarding her late filing of T1135 forms, based on the medical situation of her and her husband, was denied (at two levels) on the grounds that such situation did not prevent her from filing those forms on time.

O’Reilly J found that it was appropriate for him to consider new evidence provided by the taxpayer, namely, that her parallel request for relief regarding late GST filings had been accepted by CRA, and correspondence showing that “she acted fairly promptly” (para. 11) in seeking to address her late filings, notwithstanding the findings of the CRA decision makers to the contrary. In accepting this evidence, he applied the finding (at para. 10) in Association of Universities and Colleges of Canada v Canadian Copyright Licensing Agency (Access Copyright), 2012 FCA 22 at para 20 that new evidence was admissible “when the evidence shows that there was an absence of evidence before the decision-maker on a particular point.”

In finding that the CRA officer’s conclusion was “not justified, transparent, or intelligible” (para. 20) and before granting the taxpayer’s application for judicial review, O’Reilly J indicated that the two (GST and income tax) decision makers reaching different conclusions was not “attributable to different reasonable assessments of the evidence” and instead (regarding the late T1135 filings) “was the result of faulty inferences from the evidence that rendered the conclusion unreasonable” (para. 18).

The taxpayer had a s. 163(2) penalty vacated in the Tax Court on the basis that her involvement in the false amended return filed by her was completely passive.

Regarding its costs award, the Tax Court noted that the taxpayer’s counsel had offered to settle on the basis that the s. 163(2) penalty would be vacated and replaced by a $2500 penalty under s. 162(7)(b). In reversing the Tax Court’s finding that this settlement offer was a factor tending to increase the costs award in the taxpayer’s favour, Pelletier JA found that s. 162(7)(b) should be narrowly construed so that, on the basis of the Galway principle, the “settlement proposal was not one which the Minister could have accepted as the lower penalty under paragraph 162(7)(b) was not available” (para. 53).

Regarding a proposal made in the alternative under the settlement offer that the Minister waive the penalty under s. 220(3.1), Pelletier JA stated (at para. 64)\ that the “principle in Galway rests on the Minister’s view of the facts and the law, not on what the Minister’s view might have been.” Since at the time of the offer, the Crown “remained convinced that she had acted in a grossly negligent way in relation to false statements in her income tax return” (para. 63), the taxpayer’s offer was not one that the Crown could accept. Instead, a waiver of the penalty under s. 220(3.1) “could only be based on the respondent’s personal circumstances” (para. 67).

A group of taxpayers, who were the victims of a tax fraud, i.e., purported partnerships giving rise to large reported losses in the mid-1980s where, in fact, the partnerships were non-existent, ultimately had their Tax Court actions decided against them in 2014, and sought relief in 2014 (in the case of one group of taxpayers, of which the appellant was the only one who had not since settled with CRA), or in 2004 (in the case of the other taxpayers), for interest cancellation under s. 220(3.1). A large part of the delay (including CRA not assessing the taxpayers’ returns for quite some time) was attributable to CRA and Justice wanting to bring a criminal prosecution against the promoters before dealing with the taxpayers.

After three levels of review of the requested interest relief, CRA cancelled approximately 15 years and 63 months of accrued interest for the 2004 and 2014 applications, respectively. The lower relief for the 2014 application was considered by CRA to reflect the application to those applicants of the prohibition, after a 2005 amendment to s. 220(3.1), to going back more than 10 years with interest relief. However, in their request for interest relief, the 2014 applicants requested the grant of a larger quantum of relief regarding the interest that had accrued within the 10 year period than for the 2004 applicants “to ensure equitable treatment with the other taxpayers who made their requests earlier” (para. 29).

In finding (contrary to the decision below) that the appellant’s request should be remitted for re-determination by another CRA officer, Gleason JA stated (at paras. 36-38):

[T]he presence of the ten-year limitation period in subsection 220(3.1) of the ITA is not a complete answer to Mr. Barrs’ claim for equitable treatment, and it may be open to the Minister to grant him additional relief from interest that had accrued over the period from 2004 onward, to promote equity with the group of taxpayers who had requested relief in 2004. …

Mr. Barrs finds himself faced with an interest bill that far exceeds those of the taxpayers who made their requests for relief in 2004. Yet, they all invested in the same scheme and had their claims for interest relief examined by the same review officers based on the same facts.

Given that the independent third-level review officer failed to engage with the request for greater relief in the open years to ensure equitable treatment, his decision must be set aside. … Failure to engage with an important argument advanced by a party will generally render an administrative decision unreasonable [citing Vavilov] … .

In May 2015, the plaintiff authorized her law firm to represent her in making a voluntary disclosure of her Swiss assets, and in the summer and fall of 2015, various documents were collected and organized to this end. However, on September 25, 2015, CRA sent a letter to the plaintiff indicating that her 2005 to 2014 taxation years were under audit regarding a failure to declare foreign property. A filing made by the plaintiff on October 20, 2015 under the CRA voluntary disclosure program (VDP) was rejected by the first and second decision maker on the basis that it was not voluntary.

Walker J found that this decision did not represent an unreasonable exercise of Ministerial discretion under s. 220(3.1). She agreed (at para. 40) that it would have been “inequitable and unreasonable” for a voluntary disclosure to have been rejected as being non-voluntary if made one minute after communication of an audit, but noted that this was not the situation under review, stating (at para. 42, TaxInterpretations translation):

Plaintiff's decision to begin identifying the scope of potential disclosure is not the end of the story. … Intentions can change, as can the scope of the proposed disclosure. … The potential scope of the Disclosure could not be determined without further investigation by Plaintiff and her counsel. … I agree with the Respondent that there is an important distinction between the date information is actually disclosed under the VDP and the date the taxpayer makes the decision to investigate the making of a disclosure.

She further noted (at para. 45):

[T]he fact that Mr. Gagnon [the initial VDP contact] requested complete information for the years covered by the Disclosure does not suggest a promise on the part of Mr. Gagnon or the VDP to accept his request for disclosure. … His requests sought to complete the record.

However, the (second) decision under review was annulled given that the involvement of the first decision maker in the process for the second review decision “was not minimal” (para. 52), with regard also being had to an internal email from a CRA manager (that “We need to ensure that this VDP is denied as it should not be considered to have been voluntary but rather as a result of audit contact”) “constitute[d] unwarranted interference with the VDP's evaluation of the case” (para. 54) (although there was no evidence that this email in fact interfered with the second decision).

The decision was remitted to the Minister for a fresh determination by an authorized agent with no involvement with the previous decisions.

Both the corporate taxpayer (“405 Canada”) and its sole shareholder (“Mr. Harris”) failed to file tax returns for about a decade. In August 2016, the CRA wrote and spoke to Mr. Harris about his missing personal income tax returns. In January 2017, 405 Canada sought relief under the voluntary disclosure program (“VDP”) in respect of its unfiled returns from 2006 to 2015. This VDP request was denied in 2018, but that denial was quashed at 2019 FC 51 on the basis of a failure in the Minister’s decision to address how the enforcement action against Mr. Harris would likely have uncovered the disclosed information. On redetermination, the Minister again denied the requested relief on the basis that the non-compliance likely would have been uncovered through the CRA’s prior enforcement action since Mr. Harris, in his August 2016 telephone conversation, had confirmed that 405 Canada was active, he was told he had to file returns for 405 Canada, and his own returns showed income from 405 Canada.

In finding that this decision was reasonable, McHaffie J noted that:

• the August 2016 letter, unlike letters sent regarding previous years’ missing returns (with no follow-up when they were not filed), was accompanied this time by a phone call;
• that “enforcement action” resulted in Mr. Harris filing returns showing employment and dividend income from 405 Canada – and although those returns were filed after 405 Canada’s VDP application, “[i[t would be incongruous” for the 405 Canada disclosure to be rendered voluntary “simply because a related taxpayer did not file the returns that would reveal the same information until after filing a VDP application” (para. 19).
• the possibility mentioned by CRA in its enforcement letter of arbitrarily assessing Mr. Harris (which would not have resulted in disclosure by him of the income from 405 Canada) did not establish that this would have occurred and, in fact, in the August 2016 discussion, Mr. Harris had been informed that 405 Canada should file returns.

Taxpayers who were the “innocent dupes” (para. 10) of a tax fraud, i.e., purported partnerships giving rise to large reported losses in the mid-1980s where, in fact, the partnerships were non-existent, ultimately had their Tax Court actions decided against them in 2014, and (in 2004, i.e., before the 10-year limitation on interest relief in s. 220(3.1) was introduced) sought relief for accrued interest. A large part of the delay (including CRA not assessing the taxpayers’ returns for quite some time) was attributable to CRA and Justice wanting to bring a criminal prosecution against the promoters before dealing with the taxpayers.

After three levels of review of the requested interest relief, CRA cancelled approximately 15 years of accrued interest. In appealing the decision of the Federal Court dismissing their application for judicial review (in which they sought relief for the entirety of the period between the filing deadline for each of the taxation years in issue, and the date on which they received their notices of assessment or reassessment) the applicants submitted that their cases fall squarely within 07-1R1, para. 26(a) regarding waiver of interest if it “resulted mainly because of actions of the CRA, such as processing delays that result in the taxpayer not being informed, within a reasonable time, that an amount was owing,” and that the Minister’s delegate “side-stepped” the issue of CRA delays by focusing instead on para. 25 of the Information Circular (regarding relief for “circumstances beyond a taxpayer’s control”) (para. 38).

Before rejecting these submissions, Mactavish JA noted (at para 40):

… The Minister’s discretion must … be genuinely exercised, and must not be fettered or dictated by policy statements such as Income Tax Information Circular IC 07-1R1: Stemijon Investments Ltd. v. Canada (Attorney General), 2011 FCA 299, 341 D.L.R. (4th) 710, at paras 25, 27.

She then stated (at para 42-44 and 49):

It is evident from a review of the third administrative review that all of the appellants’ submissions were taken into account by the Minister’s delegate. …

It is true that the Minister’s delegate considered whether the accrual of interest on the appellants’ unpaid taxes for the period in issue was due to circumstances that were beyond the taxpayers’ control … . [and] noted that the [CRA] intercept letters gave the appellants the option of having their tax returns assessed without the … deductions. He also noted that had the appellants accepted this offer, it would have had the effect of “stopping the clock” on the accrual of interest … . The Federal Court did not err in finding this aspect of the Minister’s delegate’s decision to be reasonable.

While no explicit reference was made to paragraph 26(a) of the Information Circular in the Minister’s delegate’s decision, a review of that decision reveals that the appellants’ submissions with respect to processing delays on the part of the CRA were carefully considered by the Minister’s delegate. He clearly turned his mind to the question of whether additional interest relief was warranted for the period between the filing deadline in each of the subject years and the date on which each appellant first received a notice of assessment or reassessment. …

…[T]he Minister’s delegate conducted a holistic review of the processing delays that had occurred … . He considered the appellants’ submissions and explained why he was not persuaded that any additional relief was warranted … . His decision was transparent, intelligible and justified.

In 2014, CRA reassessed the taxpayer’s 2009 taxation year to deny SR&ED deductions or credits, thereby resulting in $1,510,198.00 in unpaid income taxes and interests of $331,700 on that amount. The CRA auditor did not follow the CRA Large Business Audit Manual (the “Manual”), which states that the auditor must obtain a written response from the taxpayer as to whether the taxpayer wishes to apply available non-capital losses (“NCLs”). Although, at all relevant times, the available NCLs were sufficient to eliminate the tax and interest, their specific amount was unclear until January 2015, at which time the taxpayer filed its request to have the NCLs applied so as to reduce the tax and interest due to nil. This request was denied as being filed after the end of the normal reassessment period, which ended on September 3, 2014. The taxpayer requested the Minister to exercise her discretion under s. 220(3.1) to cancel the interest accrued, on the basis that had the CRA offered to do so, the taxpayer would have applied its NCL balance. The Minister granted only partial relief on the basis that it was ultimately the taxpayer’s responsibility to decide whether it wanted to apply its NCL before the end of the normal reassessment period, which it had failed to do.

Shore J concluded that the decision was reasonable, stating (at paras 20, 21, 23, 24):

… [T]he CRA could not simply add NCLs to a specific taxation year without a request from the taxpayer. …

… [T]he Applicant simply waited for the uncertainty regarding its balance to be resolved. As such, it cannot be said that the Applicant’s situation was caused by the Minister’s fault.

… In using her discretion, the Minister could have reasonably concluded that the Applicant should receive relief under subsection 220(3.1)… . However, because the CRA is not wholly responsible for the interest accrued, the Minister concluded otherwise. This decision is just as valid and reasonable.

… [T]he Minister did in fact … provide relief for a certain portion of the interest accrued due to the CRA’s own omission.

Regarding the Minister’s alleged errors in not considering that the 2009 tax return could be reassessed beyond the normal reassessment period in accordance with s. 152(4.3), he stated (at para. 28) that “this Court does not have to consider arguments that the Applicant did not squarely put before the decision-maker (Telfer… at paras 30-31).”

Shore J also concluded that the Minister did not breach procedural fairness, stating (at para 33 and 34):

… [I]f the Applicant wanted the Minister’s delegate to read the Manual prior to rendering his decision, the Applicant should have specifically mentioned the Manual.

… [T]he Minister’s delegates responsible for tax relief do not necessarily have experience in audit. This is why requesting parties are responsible for bringing forward the full extent of their grievances.

In disclosures made under a voluntary disclosure initiated on April 4, 2014, the taxpayer included references to a number of loans made between Panamanian corporations in which the Applicant held shares, and various individuals and entities. Some of the loan amounts were included as income, but for others, no taxable benefit was reported. The voluntary disclosure was accepted, and the taxpayer assessed accordingly.

However, the taxpayer was then audited for his 2007 to 2013 taxation years in conjunction with an audit of an online pharmaceutical company (“Solaris”), of which he was the CFO and an indirect shareholder. The audit uncovered a total of over $15 million of additional income for the taxpayer’s 2007 through 2013 taxation years. The Minister’s resulting reassessments included gross negligence penalties of over $3 million for the 2007 to 2013 taxation years, which were calculated through application only to the additional taxable benefits reassessed (based on the Minister’s position that these amounts represented taxable benefits under s. 246(1).)

In dismissing the taxpayer’s application for judicial review of the Minister’s decision to impose the penalties, Shirzad J stated (at paras 37, and 38):

… If taxpayers could re-characterize taxable income or benefits as non-taxable benefits in their applications to the VDP and thereby escape penalties from future audits for having “disclosed” the amounts in this application, it would be contrary to the purpose of the VDP and its public policy rationale, which is meant to promote compliance with Canada’s tax laws by encouraging taxpayers to voluntarily come forward and correct previous omissions in their dealings with the CRA. … [T]he potential assessment of penalties even after an acceptance to the VDP will encourage taxpayers to be more diligent in their VDP applications, and to ensure that they exercise a high degree of care when submitting their VDP applications to ensure completeness and accuracy. …

[T]o interpret the Information Circular as promising protection from penalties even on the non-taxable amounts disclosed by the taxpayer would put taxpayers applying to the VDP in a better position than the ordinary taxpayers. … Given his background, the Applicant was knowledgeable about tax matters, and it raises suspicions as to whether the Applicant may have been attempting to avoid penalties on his loans by characterizing them as non-taxable, but including them in his VDP application.

Shirzad J concluded (at para 50):

The Minister did not breach procedural fairness in making the decision to assess penalties, and the Minister was not estopped from rendering and enforcing the Penalty Decision. The Minister did not act unreasonably in rendering the Penalty Decision.

The applicant was the succession (i.e., estate) of an individual who was suspected of being the head of a drug trafficking ring, and who had been murdered on August 1, 2012. The ex-spouse of the deceased had been appointed by the Quebec Superior Court as sole liquidator (i.e., executor) in February 2016 after the previous liquidator had left the succession in shambles. Prior to that appointment, the ARQ had assessed the succession for undeclared income of the deceased for his 2007 to 2010 years, and CRA reassessed the succession in August 2013 for those years on the same basis. In April 2017, the succession requested CRA for relief from gross negligence penalties and interest but, on the initial review, CRA provided relief only for the interest that accrued between the date of death and September 2017. On a second level review, CRA was provided with copies of reassessments made by the ARQ in May 2016 which, pursuant to an agreement (the “Agreement”) between it and the succession, provided interest relief but also reversed all the penalties imposed by the ARQ, as well as copies of the representations that had been made in this regard to the ARQ. (The record showed that CRA had also been informed directly by the ARQ of this relief.) CRA did not respond with any penalty relief, and did not refer to the Agreement.

Before remitting the matter to another delegate for redetermination, LeBlanc J stated (at para. 40, TaxInterpretations translation):

It is not for me to determine if the Agreement should apply to the [estate], but it appears to me that it has the right to see the Agreement considered and to know why it was not applied in this case, if that was the CRA viewpoint. The failure to do neither, in the Decision itself or the recommendation which preceded it, had the effect, as it appears to me, in the particular circumstances of this case in the context of an application which is essentially an equitable one, of “depriving the process of justification, transparency and intelligibility,” to adopt the expression used in Telfer … .

In 2008 the CRA contacted the taxpayer to ask him to provide supporting documents to prove commission expenses for the 2005 to 2006 taxation years, which he was unable to do as his former partner, who had also been his landlord, had destroyed the partnership documents, and his former spouse had also withheld correspondence and destroyed documents relevant to those taxation years. CRA disallowed the commission expenses by a notice of assessment dated November 24, 2008 and the taxpayer filed a notice of objection on February 2, 2010, i.e., just under one year from the deadline for filing a notice of objection and a few weeks before the one year deadline under s. 166.1(7)(a) for requesting that the Minister extend the time to serve an objection. After the Minister registered a lien against the taxpayer’s house, in April 2012 the taxpayer applied to the Tax Court, which resulted in an order dated February 26, 2013 pursuant to which the Tax Court deemed the Objection to be a valid notice of objection. The taxpayer requested relief from interest owing, but the Minister’s delegate only granted relief for a one-month period.

Favel J found that the taxpayer had implicitly requested the Minister for an extension pursuant to s. 166.1 of the time for objecting, stating (at para. 50):

Notices of Objection filed after the 90 day delay for objecting, but within the extension of time delay, have been interpreted as implicit applications to extend time … .

Favel J granted the appeal for judicial review, finding (at paras 51, 52, 54 and 56):

According to subsection 166.1(5) of the Act, when an application to extend time has been filed within the delay, “the Minister shall, with all due dispatch, consider the application and grant or refuse it, and shall thereupon notify the taxpayer in writing of the Minister’s decision.”

In this case, the Minister did not treat the Applicant’s Objection with all due dispatch. Rather, the Minister remained passive for two years … .

The Minister’s analysis of delays imputable to the CRA is limited to those incurred between the TCC order of February 26, 2013 and the assignment of the Applicant’s file to an appeal officer in November 2013, and consequently, at the initial level, cancelled interest for one month during that period (October 2013) to account for the delay. However, the Minister made no comment with respect to the delays incurred between the date the Applicant filed the Objection in 2010 and the TCC order in 2013

…The decision of the Minister’s Delegate is set aside and shall be remitted to another Delegate for redetermination of the Applicant’s entitlement to relief from interest accrued due only to delays caused by the CRA.

The applicant was assessed a penalty for late filing her T1135 return on foreign property for the preceding taxation year, but the penalty was waived. For the current year, she filed her regular return about seven weeks late after claiming to have confirmed on the CRA General Inquiries line that there would be no penalty for doing so (as no Part I taxes were owing) but filed her T1135 return with that return – and was assessed a late-filing penalty under s, 162(7) for late-filing the latter return, of $25 per day (or $1225 in total) plus interest. She stated that she filed late because she was away from Fredericton from February to May 2016, and did not have the necessary documents to file on time, and in connection with the second-level review (where her application was also rejected), noted her reliance on her telephone call.

In finding that it was reasonable for CRA not to waive the penalty, McVeigh stated (at para. 19):

Given that she had not and then applied for and received penalty relief just the year before, this should have illuminated to her the importance of filling the T1135 on time because she had the teaching moment the year before.

She also accepted (at para. 20) the CRA view (summarized at para. 9) that:

Without her documents (her being in Toronto and not Fredericton) … she could have instead filed an estimated 2015 Form T1135 and then amended it once she had her documents.

Starting in the 1984 year, Applicants claimed losses from partnerships that in fact had no business. Ultimately, charges were laid against the promoters in 1994, and the criminal proceedings concluded in 2004. During 1987 to 1989, CRA sent “intercept” letters to the Applicants, advising them that their tax returns were being held in abeyance until completion of the CRA audit, but that they could request to have their returns assessed without the claimed deductions. The Minister ultimately disallowed all the claims.

300 of the investors appealed the assessments to the Tax Court of Canada in 1991. In 1994, CRA withdrew from a settlement agreement on Justice advice that a settlement would jeopardize the criminal proceedings. Following disposition of the Tax Court appeals in January 2014, numerous Applicants requested relief under s. 220(3.1), citing, as their main reason, CRA delay (the “2014 Applicants”). Other Applicants requested interest relief before the 2005 amendment to s. 220(3.1) denying interest relief more than 10 years after a taxation year (the “2004 Applicants”). After three levels of review, the Minister cancelled approximately 15 years and 63 months of accrued interest for the 2014 and 2004 Applicants, respectively.

Before dismissing the Applicants’ applications for judicial review, Boswell J stated (at paras 55 - 57):

… [T]he sheer quantity of the delays did not automatically warrant interest relief. … The Delegate reasonably considered the length of the delays and recognized that certain time periods were not appropriate for interest relief and others had already been accounted for in the earlier reviews. …

… [T]here were no circumstances beyond the Applicants’ control which prevented them with complying with their obligations to pay tax. Had the Applicants accepted the offer in the intercept letters … they would have received notices of assessment they could have objected to on the basis that the assessments did not include credits and deductions they genuinely believed to be valid. If they paid the taxes owing as stated in the assessments, no interest would have accumulated. …

… [F]or the 2014 Applicants … [u]nder subsection 220(3.1), the Minister no longer has discretion to cancel or waive interest beyond 10 years … .

Respecting a comparison the Applicants had submitted (para. 45) between themselves (“innocent victims of fraud”) and the “KPMG Untouchables” (who “knowingly participated in a suspect offshore tax scheme”) and “the GLGI cases where taxpayers were granted full interest relief despite their culpability in participating in the tax schemes,” Boswell J stated (at para. 59):

…[C]omparisons to the KPMG Untouchables or the GLGI donors are neither factually relevant nor legally permissible. In Ludco … the Federal Court of Appeal held that evidence about other taxpayers who had benefited from an interest deduction for loans obtained in circumstances identical to those of the appellants was inadmissible… .

A retired investment dealer had, over a number of years, failed to report around 15 items of dividend or other investment income (some of them, somewhat over $10,000), which he claimed resulted from a failure of an investment dealer (“BMONB”) to send him T5 or other reporting slips for those items (although such forms had been received by CRA). In addition, in his 2014 return he had not reported approximately $700,000 which he had withdrawn from his RRSP. He claimed that he had been advised by a BMONB employee that reporting this amount was not required as it had been subject to 30% withholding on such withdrawal.

Sommerfeldt J found that the taxpayer had failed to establish a due diligence defence for any of the above failures, so that it was unnecessary to determine which of these failures were ones for which the taxpayer needed to establish due diligence. However, he went on to provide an obiter invitation to the Minister to reduce the s. 163(1) penalty, noting the magnitude of the penalty in relation to the taxpayer’s current means, and further noting (at para. 51) numerous previous judicial statements along lines that the s. 163(1) penalty was “harsh, particularly where source deductions have been withheld” and “can be disproportionate in nature,” and that “the scope of the due-diligence defence is quite limited, as it does not apply to unreasonable mistakes of fact made in good faith, to mistakes of law made in good faith, or to reasonable mistakes of law.”

Mr. Hogg, was the sole director, officer and shareholder of the appellant (“169”). Mr. Hogg noticed irregularities with 169’s tax returns for fiscal year-end 2009, leading to a breakdown in trust between him and 169’s new accountant (the “Accountant”). When requested to return the source documentation, the Accountant indicated that much of it was missing. In 2010, Mr. Hogg undertook to reconstruct fourteen years of financial statements for 169 with the assistance of a new accountant. In November 2012, Mr. Hogg called CRA to update the address on file to reflect his address, rather than the Accountant’s, but he did not officially revoke third-party representation. Ultimately, the Minister assessed “failure to file” penalties and arrears interest for 169’s 2009-2013 taxation years, as a result of those returns all being filed between January 19 and April 22, 2015.

On a first-level review of 169’s request for relief from interest and penalties, the first-level reviewer recommended cancelling arrears interest for the 2009 and 2010 taxation years, given Mr. Hogg’s unawareness until 2010 of the Accountant’s failings. In response to a request for further relief, the second-level reviewer found that there were no circumstances beyond Mr. Hogg’s control that would have affected his ability to file and remit as required.

Diner J found that there was no breach of procedural fairness, stating (at para. 22) that "there is no evidence of notification to the CRA about any change of third party representation," so that it was not unreasonable for CRA to communicate to the Accountant rather than directly with Mr. Hogg.

After stating (at para. 26) that “The content of the duty of procedural fairness in taxpayer relief applications is minimal”, Diner J found the Minister’s decision to not grant further relief reasonable, stating (at paras 35 and 38):

…[T]he Minister’s Delegate …reasonably concluded that the Applicant’s circumstances were not “beyond its control”. …[B]oth …CRA reviews [concluded] …that the Applicant did not exercise reasonable care between the time it discovered the Accountant was not properly doing his job, and the filing of its returns in 2015.

… [T]his Court has held that even when penalties were assessed as a result of accountant error, the Minister is not required to exercise her discretion … . The fact that the Applicant made attempts to remedy the situation by reconstructing financial statements which took a significant amount of time does not render the Decision unreasonable.

Annis J found that a CRA “fairness” letter to the taxpayer setting out proposed reassessments for his 2007 to 2016 taxation years and giving him 30 days to provide additional information and representations was not a “decision” that he had the jurisdiction to review under the Federal Courts Act.

In addition, even if he had such jurisdiction, he would not have exercised it in the taxpayer’s favour. Much of the taxpayer’s complaint was that the taxpayer at the same time was advancing his position that CRA should accept a “voluntary” disclosure made by him as being within the ambit of the CRA VDP program. Annis J found that there was nothing in this that was prejudicial, stating (at paras. 29-30):

…[E]ven if the VDP application was granted after the assessment was made, the CRA would issue a new reassessment taking into account its decision.

I am also in agreement with the submission by the Respondent that if the Minister grants Mr. Prince’s second-level VDP application review, she will not charge him penalties and will not prosecute him. She may also partially relieve him of interest… . Nothing in the ITA or in the Circular prevents the Minister from granting such relief where the Minister has reassessed a taxpayer in the course of a regular audit.

The taxpayer (the Applicant) was a self-employed sound engineer who worked as an independent sub-contractor to the US limited partnership for a Canadian band who performed largely in the U.S. The taxpayer initially filed U.S. (US 1040NR) returns reporting income tax payable to the IRS on this income, which he paid. The taxpayer then attempted to take advantage of US/Canada Tax Treaty, and requested that the LP file adjustments with the IRS. Subsequently, the taxpayer filed Voluntary T1 Adjustments for his 2012, 2013, and 2014 taxation years on August 17, 2016. Although quite unclear from the reasons for judgment, he apparently had previously filed nil late returns for those years in which the income was treated as covered by a foreign tax credit claim for the U.S. taxes that he now considered to be refundable. The CRA responded with reassessments that included interest and penalties. A Second Level Review (the Decision) confirmed the denial of the taxpayer’s request for relief from penalties primarily on the basis of applying the test in the Information Circular IC-07 that no extraordinary circumstances justifying the late filing of the returns had been established.

The Applicant submitted (at para. 30) that as he “came forward with a voluntary disclosure in a timely fashion … it was unreasonable for the Delegate to not exercise discretion in waiving the penalties.”

In determining that the Decision was reasonable and fell well within the range of acceptable outcomes, McVeigh J stated (at paras 38, 39 and 43):

It was well within the Applicant’s control to file his past tax returns in a timely manner. …

It is not unreasonable for the Delegate to consider the Applicant’s past late filings as a negative factor in assessing whether the Applicant will be given the relief from penalties. ...

Nor does the Applicant not escape penalties because he made a voluntary disclosure. The Federal Court of Appeal in Sifto Canada Corp. v Canada (Minister of National Revenue), 2014 FCA 140 noted at paragraph 5:

[i]t is common ground that the voluntary disclosure program is a program by which taxpayers are induced to disclose past tax compliance errors in the expectation that if the disclosure is accepted as meeting certain conditions, any penalties that might have been imposed in relation to the errors will be waived.

This assumes, of course, that the voluntary disclosure is accepted to meet certain conditions. If an unfavourable response to the request is received, taxpayers may request a second administrative review. This is clearly what is occurring in this case. Therefore, the Applicant cannot rely on the voluntary disclosures program as a way to escape penalties.

In August 2016, CRA wrote the sole shareholder (Mr. Harris) of the applicant (“405”) advising him of his obligation to file personal income tax returns. In a subsequent phone call, CRA advised him that any business returns were to be filed first before any personal returns. In January 2017, 405 filed a request for relief under CRA’s Voluntary Disclosures Program (VDP), which, once the identity of 405 was revealed, was denied both initially and by a second review. The first review relied on a memo to file of a telephone conversation with Mr. Harris on August 19, 2016, in which in which Mr. Harris confirmed that 405 was still active and Mr. Harris was informed that he had to file both his personal and business tax returns but that the business returns had to be filed first – and concluded that since this conversation had taken place before 405’s disclosure, that such disclosure was not voluntary.

Before finding that the decision not to grant voluntary disclosure was unreasonable because it lacked transparency, so that the matter was to be returned to another decision maker for redetermination, Gleeson J stated (at paras 19, 22):

The failure to address how enforcement action against one taxpayer would “likely” uncover information that is the subject of voluntary disclosure by another taxpayer undermines the elements of justification, transparency, and intelligibility. …

… Neither the decision letter nor the “memo to file” engages in any analysis as to how the enforcement action against Mr. Harris would likely have uncovered the information disclosed by the applicant. The respondent’s submissions to the effect that the Delegate could reasonably conclude, based on Mr. Harris’s role as the sole owner, director, and employee of the applicant alone, that the applicant’s information would have been uncovered in the course of the enforcement action against Mr. Harris is inadequate. Simply looking at the relationship between the parties is insufficient … .

In 2014, the taxpayer filed returns for 2011, 2012 and 2013 in order to claim the Canada child tax benefit (“CCTB”), together with a T1135 form for each year reporting her interest in a Florida property (all of the income from which had been reported by her husband, the co-owner, as well as included in his timely-filed T1135 forms). CRA then assessed her penalties under s. 162(7)(a) for her failure to have filed timely T1135 forms. On a second-level review, the Delegate noted that the taxpayer was “required” to file her tax returns by the due date since she wished to qualify for the CCTB, and “[t]he fact that there was no tax due, no information withheld and the returns were filed voluntarily would not be sufficient grounds to warrant a cancellation under the Taxpayer Relief provisions of the ITA.” – although partial relief was provided by cancelling the penalty for 2012 but not 2011.

After noting that the pre-2013 version of the T1135 form states “[c]omplete and file this statement with your tax return”, which the taxpayer believed meant the filing requirement did not apply to her, because she had no taxable income in 2011 and 2012, he noted (at para. 34):

… I agree with Ms. Takenaka that the pre-2013 T1135 form’s instructions are unclear, confusing, and border on misleading. …

Mosley J further found (at paras 46, 48 and 49), before remitting the matter to another CRA delegate for reconsideration of the penalty for 2011:

… She was not required to file a tax return for 2011 before the deadline in 2012. The requirement to file a return for 2011 only arose when she decided to claim the CCTB in 2014. …

… [I]t is clear the Delegate’s mistaken belief that Ms. Takenaka was required to file a timely tax return influenced his determination that she had not acted diligently. … I find the Decision lacks justification and is not intelligible. …

The Applicant’s “second-level” request for relief was based in part on her claim of hardship. However, the Decision does not address the question of hardship at all.

The taxpayer's return failed to report employment income of $47,770. His accountant confirmed to CRA that it had been his mistake in somehow overlooking the T4 that had been provided to him. In confirming that the Minister’s decision to deny penalty relief was reasonable, Campbell J stated (at paras. 8-9):

The ... second level review [found]:

… [T]he amount omitted … represents a large amount of his employment earnings. Since he remitted the slip information to his accountant, he was aware of this income. Consequently, this fact does not allow me to conclude that he was prevented from ensuring that all income from all his slips were reported and that he did not notice this important discrepancy in his income. [Emphasis added]

Thus, the focus of the Officer’s decision was on the Applicant’s responsibility to exercise care to ensure that all income was reported, and to supply evidence that he was prevented from doing so. ...[T]he Applicant could not establish that he was prevented from meeting his obligation ... .

The applicant transferred $300,000 to a Bahamas bank account in 1978. In order to put his affairs in order so as to not create difficulties for his heirs, he made a voluntary disclosure for his 2005 to 2014 taxation years, which was accepted by CRA on June 17, 2015, so that penalties were waived and interest relief provided for those taxation years. In August 2016, CRA on the basis of the information provided under the voluntary disclosure (but in the face of the taxpayer’s “inability to provide details or documents regarding the initial transfer of $300,000 or the management of his bank account beginning in 1978” (para. 6)) began a review of the applicant’s 1980 to 2004 taxation years with a view to including $173,460 of unreported income and assessing penalties for failure to file T1135s for those years.

The taxpayer argued that issuing any assessment in relation to these adjustment proposals respecting the 2005 years would be contrary to the agreement entered into following the voluntary disclosure, and would be contrary to the CRA’s usual practice in dealing with voluntary disclosures of taxpayers, who are not prepared to commit “tax suicide.”

After noting (at para. 9) that the applicant had not demonstrated that “the respondents in fact agreed to not raise reassessments for tax years prior to the tax years in question in the applicant’s voluntary disclosure,” and in rejecting the applicant’s application for an injunction prohibiting the Minister from issuing the proposed reassessments, Martineau J stated (at para 10):

[A]s this is a question of the possible merits of a prohibition to prevent the exercise of discretion that is clearly assigned to the Minister by the ITA — that of issuing a reassessment — it must be noted that the applicant was unable to cite any specific jurisprudence in this regard, and even less so for a motion for an interlocutory injunction aimed at suspending, to the sole benefit of the applicant, the application of a law of general application such as the ITA, the constitutionality of which is not in question.

After further noting that, under ss. 165(3) and 171, the Tax Court had the power to cancel an assessment, he stated (at para. 13):

…The public interest — i.e. the orderly application of the ITA — takes precedence here over the financial and other inconveniences that the applicant may face by having, like all taxpayers, to follow the normal challenge procedure set out in the ITA.

On March 17, 2015, the taxpayer, which was a Canadian corporation that had held land in Ghana at all relevant times, submitted T1135 returns for its 2005 to 2013 years under the voluntary disclosure program (VDP). Relief was denied on the basis that the taxpayer’s returns were subject to ongoing enforcement action. This was true respecting the taxpayer’s T2 returns for 2011 to 2013, which CRA had been demanding that the taxpayer file in a number of demand letters. At the time of the VDP filing, these returns had at last been filed, but had not yet been assessed. However, the taxpayer’s 2005 to 2010 T2 returns had been filed and assessed.

The taxpayer requested a judicial review, and proposed to the Department of Justice (“DOJ”) that the judicial review be settled on the basis that the 2005-2010 T1135 returns were voluntary and thus would qualify for the program, while the 2011-2013 T1135 returns would be subject to the statutory penalties. The DOJ suggested they discontinue the judicial review and refer the application back for reconsideration, and that the DOJ would advise the new decision-maker that, in the DOJ’s opinion, it was unlikely that the 2005-2010 information returns would have been uncovered by the CRA’s enforcement action. On reconsideration, the Minister’s Delegate once again concluded that the taxpayer’s disclosure was not voluntary.

Ahmed J found (at para 26) that, respecting the 2011-2013 T2 returns, “the enforcement action taken by the CRA would likely have uncovered its obligation to file T1135 returns. … I believe it was reasonable for the Minister’s Delegate to conclude that a CRA agent would seek to follow up with the Applicant regarding its obviously missing T1135 return.”

However, in allowing the application for judicial review on the basis that the Minister’s delegate had not considered the possibility that the T1135 returns for the earlier (2005 to 2010) returns were filed voluntarily, i.e., not subject to likely enforcement action, he stated (at paras 27, 30):

…Although the enforcement action regarding the Applicant’s 2011-2013 T2 returns is clearly considered by the VDP program to be enforcement action regarding the 2005-2010 period, I do not believe the Minister’s Delegate has provided adequate reasons to support her finding that this enforcement action would likely have uncovered the Applicant’s 2005-2010 T1135 filing obligation.

…[T]he CRA officer’s notes do not show that he considered the possibility that some, but not all, of the disclosure may have been voluntary. Notably, the notes include the error repeated in the Minister’s Delegate’s decision that “[a]t the time of the Voluntary Disclosure, the T2 Returns were not assessed”. Nothing in the decision shows that the Minister’s Delegate even considered the DOJ letter, nor does the Decision explain why the Minister’s Delegate believed that the CRA’s enforcement action was likely to uncover the Applicant’s 2005-2010 T1135 returns. In this regard, for these reason and based on the facts of this case, the Decision is unreasonable.

In dismissing an application for judicial review of a CRA decision not to grant interest or penalty relief for an assessment of a year for which the taxpayer had not filed a tax return, and in rejecting a submission of the taxpayer (whose “returns indicate that he has consistently earned over $100,000 annually”) that garnishing $720 per month produced financial hardship in light inter alia of his children’s university tuition, Annis J stated (at paras. 14-15):

[I]n many Canadian families, children are expected to finance their own university education as an investment which would be recovered in the future by the benefits of the knowledge and skills acquired by a higher education. … In any event, I agree with the CRA’s interpretation that financial hardship for an individual is financial suffering or lack of what is needed for basic living requirements, such as food, clothing, shelter and reasonable nonessentials.

McVeigh found that it was reasonable for the Minister find that the taxpayer did not have financial hardship. His net worth was $295,000 (including a rental property), and his wife had income. The taxpayer was clearly able to afford basic necessities, which is incompatible with a finding of financial hardship. The taxpayer's children were in university, but university is not a basic necessity.

The taxpayers were six family members, each of whom owned a small percentage of some properties in Canada, which were sold at a loss over two years. The Minister assessed penalties under 162(7), which amounted to $10,000 each.

Roy J upheld the Minister's rejection of the taxpayers' applications for relief. The decision to deny each of the six (essentially identical) applications was reasonable, as there were no extraordinary circumstances, there had been procedural fairness, and the decision-makers had not fettered their discretion.

Roy J nevertheless urged the Minister to consider relief, given the combined effect of all six penalties, which would have been just one $10,000 fine if the properties had been held by just one person. As the properties were sold at a loss, some measure of relief would clearly be just.

Roy J noted in particular that the situation was not analogous to the Court of Appeal's "volume discount" analysis in Stemijon, where each taxpayer independently entered the arrangement giving rise to penalties. In the present situation, five of the family members were essentially uninvolved in the decision-making (para. 41).

The taxpayer, which was a non-resident corporation that had no liability for tax as a result of losses, was assessed for $15,000 of penalties under s. 162(2.1) (plus interest) for its failure to file returns for its 2005 to 2010 taxation years. The taxpayer sought relief under s. 220(3.1) for $12,500 of these penalties (conceding that there should be no relief for 2010 given the Federal Court of Appeal decision in that year in Exida.com establishing that a penalty of $2,500 was payable for that year under s. 162(7) (rather than under s. 162(2.1).)

The taxpayer sought relief on the basis of the conflict between the Goare and Exida.com Tax Court decisions as to the application in these circumstances of s. 162(2.1), and the finding at the Federal Court of Appeal that this provision did not apply (but, rather, was supplanted by s. 162(7) (paras. 10, 20)).

CRA did not grant relief, on the basis that the Federal Court of Appeal had established that the penalty was payable. In granting the application for judicial review, Roy J stated (at para. 21) (TaxInterpretations translation) "quite simply, the reasons given for refusing the request for relief did not correspond in any way with the argument advanced by the applicant."

The taxpayer provided grossly negligent opinions on a charitable donation scheme (which unbeknownst to her was a scam) and signed charitable donation receipts in connection therewith. The Minister assessed her for penalties of $546,747 under s. 163.2(5), calculated as 50% of the purported federal tax savings of all 134 participants in this program.

After finding that the s. 163.2 assessment was valid, Stratas JA noted that, although s. 163.2 penalties were imposed on a mechanical basis, the Minister was required on any application for relief under s. 220(3.1) to take the "fairness purpose" (para. 58) of that provision into account (although here, no application for such relief had been made, per. para. 61). He further stated (at para. 59):

[T]he Federal Court may quash unreasonable exercises of discretion by the Minister – i.e., exercises of discretion that fall outside the range of the acceptable and defensible on the facts and the law: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190. Depending on the circumstances, the range available to the Minister can be quite narrow: Canada (Attorney General) v. Abraham, 2012 FCA 266 at paragraphs 37-50; and in a different context, see Canada (Attorney General) v. Canadian Human Rights Commission, 2013 FCA 75 at paragraphs 13 and 14.

The taxpayer failed to withhold income tax on a bonus it paid to its president, but caught the error 11 days later without any CRA involvement. The Minister's decision not to waive penalties was based chiefly on "the company's failure to quickly remedy the error." Mandamin J stated (at para. 40):

It is not clear which "error" the Director was referring to in his decision, nor how the Applicant failed to remedy the error, regardless of whether the error was the failure to remit or to address payment of the final penalty amount. The evidence supports the Applicant's claim that it quickly remedied its failure to remit the amount due and that it took steps to address the penalty owed as a result of the assessment.

The Minister's decision therefore was not justified, transparent and intelligible, and was sent back for redetermination.

The taxpayer's voting shares were held mainly by a pair of business associates ("Ouimet and O'Neill"). O'Neill was responsible for preparing the taxpayer's 2007 return, but failed to provide his tax preparers with the documentation in a timely fashion. In fact, O'Neill had perpetrated a fraud on the taxpayer which eventually lead to a brokerage O'Neill worked for paying the taxpayer $7 million in compensation. The Minister denied the taxpayer's application for relief of interest and late-filing penalties for its 2007 return.

Scott J. granted the taxpayer's appeal and remitted the matter for reconsideration. The Minister's reasons had stated that the taxpayer was aware in 2007 that its return would be late, which ignored that the taxpayer had no reason in 2007 to believe that it was unreasonable to entrust O'Neill with its return. Moreover, there was no discussion of O'Neill's fraud.

The taxpayer appealed the Minister's decision to deny relief of interest on corporate tax, payroll deductions, and GST accounts. Phelan J. stated (at para. 11):

I can find nothing unreasonable in the Minister's decision. The factors were examined and a rational conclusion was reached on each:

• There was no causal connection between [director] Mr Dakha's injury and the failure to meet tax obligations as there was another director capable of meeting the fiscal obligations.
• The continuity of operations was a moot point as the corporation had ceased operations in 2008 for reasons other than pending tax liabilities.
• The corporation had not made a meaningful attempt to address the tax portion of the debt although Mr. Dakha certainly did.
• The corporation had not exercised reasonable care in conducting its tax affairs because it had past problems with compliance. The corporation had allowed penalties to accrue on its accounts since 2002.

In a previous hearing, the Federal Court ordered a redetermination of taxpayer's application for s. 220(3.1) relief. Martineau J. affirmed the Minister's decision to again deny such relief, and noted (at paras. 13-15) a number of factors that demonstrated that the review process had been fair, including that the redetermination was carried out by a different CRA office than the first, by personnel who had no prior exposure to his case, and that the taxpayer had been given a chance to comment in person on the Technical Advisor's draft report and present arguments.

The taxpayer had accumulated interest from a tax debt in a prior taxation year. He applied for relief from the interest on the basis that the Minister had misled him into thinking that there was no outstanding debt in the intervening years.

Barnes J. affirmed the Minister's decision to deny relief. The taxpayer's assertions about being misled lacked an air of reality, given that he had filed documents with CRA which clearly indicated that he was aware of his tax debts. Even if the taxpayer were unaware of his debts, it was not clear that there had been any detrimental reliance, i.e. that the taxpayer would have paid down his debt at all.

The taxpayer reported $22,000 of income when his income was in fact $60,000. The Court affirmed that the Minister's decision not to waive the associated penalties was reasonable. Sharlow J.A. stated (at para. 8):

The amount of the penalty was approximately $7000, but the assessment that took into account the unreported income as well as the available credits resulted in less than a $200 change to Mr. Spence's net tax liability. We have no doubt that the Minister was aware of these facts. However, we are unable to say that the amount of the penalty, considered against all the relevant circumstances, is such a compelling factor in Mr. Spence's favour that it renders the Minister's decision unreasonable, particularly in light of the amount of the unreported income compared to Mr. Spence's total income.

The taxpayer was a U.S. resident which operated in Canada from 1999 to 2008, under the misapprehension that it did not have a permanent establishment in Canada and therefore presumed that it was not required to file returns. On discovering its error in 2006, the taxpayer filed returns under the Voluntary Disclosure Program "(VDP"). Because of substantial loss carry-forwards and carry-backs, its total tax owing was $42,361. The Minister waived penalties but not interest, and the interest owing for 2001 through 2003 was $346.718,.17, $125,110.24 and $142,974.35.

In the second-level review decision it was found that, because the requirement to file a T2 return does not depend on the existence of a permanent establishment, the taxpayer had not exercised reasonable care in its tax compliance; furthermore, the continuity of the taxpayers' business operations and its employees' employment would not be jeopardized because the business no longer operated. O'Reilly J. agreed with these reasons, noting that the delegate at the second level had correctly treated the guidelines as non-binding. He also stated (at para. 36):

Finally, with respect to Toastmaster's submission that the result is plainly absurd and harsh, I cannot agree. The Minister's delegates reasonably concluded that Toastmaster's situation was brought about by its own unreasonable errors. By the time it filed its final VDP submissions in 2008, its outstanding balance owing was not large, taking into account the application of eight years of loss carry-forwards and carry-backs, effectively reducing the amount of net tax owing. Much more tax would have been payable in Toastmaster's profitable years had timely filings been made. And it is on those amounts that arrears interest was applied.

The taxpayers had the same financial representative, who failed to file foreign property ownership form T1135 for several taxation years, even though he had done so in other years. The Court found that the Minister's decision not to grant relief on the resulting interest and penalties was unreasonable. The decision relied entirely on Information Circular 07-01 ("Taxpayer Relief Provisions") without any demonstrable understanding that an information circular is not law. The decision should have referred to s. 220(3.1), being the actual authority for the Minister's discretion.

Nevertheless, the Court affirmed the decision because it was clear that the taxpayers' application had no merit. The financial representative's belief that the T1135 forms were unnecessary (supposedly on the assumption that the Minister got the necessary information from other filings) was patently unreasonable.

The six taxpayers also argued that it was unfair that six separate penalties be levied against them for only one mistake made by their common representative. The Court dismissed this plea for a "volume discount," noting that "each [taxpayer], accepting the risk, chose... to have a representative look after the filings. That risk materialized..." (para. 51).

The trial judge found that the "taxation year" referred to in s. 220(3.1) is the year of assessment of the related tax debt and not the year in which the interest accrued and, therefore, that the subsection only gives the Minister the discretion to waive interest that accrued within 10 years of the end of the taxation year in which the tax debt arose where the taxpayer applied for relief by the end of that period.

The Court of Appeal accepted the taxpayer's submission (at para. 12) that subsection 220(3.1) "permits the Minister to exercise his discretion to cancel interest accrued in any taxation year ending within ten years before the taxpayer's application for relief, regardless of when the underlying tax debt arose." Stratas J.A. stated (at para. 9) that "nowhere does subsection 220(3.1) mention the year of assessment as a relevant consideration." He noted (at para. 18) that, taken in isolation, "interest... payable... in respect of a taxation year" was ambiguous. Furthermore, the interpretation at trial was (para. 36) "contrary to the purpose of subsection 220(3.1): to allow taxpayers to ask for relief against penalties and interest and to allow the Minister to grant such relief where, in his view of the overall fairness of the situation, it is appropriate to do so."

Heneghan J. found that a decision from a second-level CRA review of the taxpayer's request to waive interest and penalties breached the taxpayer's procedural fairness rights, because it was substantially a copy of the first-level decision. As it was not clear what the result of an independent review would have been, the matter was referred back to be considered by a different CRA adjudicator.

The taxpayer argued that the 10-year limitation period in s. 220(3.1) commences with each year in which interest accrues, rather than the year of assessment giving rise to the interest (and therefore that the Minister can always forgive the last ten years of interest, regardless of the time since the assessment year). Shore J. rejected the argument, as it was inconsistent with the Court of Appeal's analysis in Montgomery of the meaning of "taxation year" in s. 127(5). It was irrelevant that s. 127(5) had since been repealed.

Following the filing of notices of objection by the taxpayer respecting the denial of the deduction of limited partnership losses, the Minister indicated that her Notices of Objection would be held in abeyance pending the outcome of litigation respecting another taxpayer, which was ultimately determined against that taxpayer. Before finding that an application for judicial review of the decision of the Minister not to waive interest should be dismissed, Evans, J.A. stated (at para. 5702):

"those who, like Ms Telfer, knowing fail to pay a tax debt pending a decision in their related case normally cannot complain that they should not have to pay interest and if they had properly paid the sum claim to be due, and were later found not liable to pay it, the Minister would have had to repay the overpayment, with interest ..."

After the Minister refused to waive interest and penalties in an application based on financial hardship, the matter was referred back to the Minister for redetermination given that the review of CCRA of the financial position of the taxpayer took into account only the interest and penalties owing by him and not the amount of taxes owing, and treated the fair market value of a property as being equal to its purchase price in 1989, without taking into account that there would have been a decline in value subsequent to that date.

The decision of the Minister to deny an application for cancellation of interest was remitted to the Minister for reconsideration given that the decision was based on misapprehension of facts that were material in reaching the decision.

S.127(5) of S.C. 1993, c. 24, which effectively provides that s. 220(3.1) "applies to the 1985 and subsequent taxation years" indicates that s. 220(3.1) only applies to penalties and interests arising from assessments for the 1985 and subsequent taxation years, rather than giving the Minister the discretion to cancel or waive any interest payable that arises in the 1985 and subsequent taxation years (including interest referable to tax returns for 1984 or previous taxation years). Pinard J. noted (pp. 6368-6369) that "there would have been no need to include 'taxation year' or 'subsequent taxation year', if the cutoff point were to be determined by reference to the accruing of interest and not the year for which a return was filed."

The time taken to complete the initial reassessment of the taxpayer (from January 1994 to the spring of 1995) was not unreasonable given that the auditors had to also look at records of companies partially owned by the applicant Although nothing transpired for approximately two and one-half years after the applicant filed his notices of objection, it was to be remembered that the applicant knew the amount of taxes and interest that were payable and could eliminate accrual of interest by making a payment. O'Keefe indicated (at p. 6630) that "a high level of deference should be given to decision makers acting pursuant to subsection 220(3.1)."

In reversing a refusal of the Motions Judge to extend the time for bringing an application to review a decision of the Minister not to extend the time for filing a preferred beneficiary election, Stone J.A. stated (at p. 6002):

"In our view, it is arguable that the statutory delegate erred in law by refusing to extend the time for filing a preferred beneficiary election which had been signed and passed on to the staff by the trustee for posting prior to the filing deadline."