When The CRA Says, "No”: Exploring Judicial Review For Denied Taxpayer Relief From Penalties, Interest Payments On Tax Debt

Introduction: Judicial Review & The CRA's Taxpayer-Relief Program

Dealing with the Canada Revenue Agency (CRA) can often feel like navigating a complex maze. When circumstances beyond your control hinder your ability to meet your tax obligations, the CRA's Taxpayer Relief Program offers a potential lifeline—a chance to have penalties and interest waived or cancelled. But what happens when that lifeline is denied? For taxpayers who believe that the CRA unfairly or unreasonably denied their taxpayer-relief application, judicial review offers a potential avenue for recourse.

While the CRA's Taxpayer Relief Program aims to provide fairness, the process isn't perfect. Perhaps the Canada Revenue Agency's taxpayer relief agent failed to adequately consider your extraordinary circumstances, or perhaps the CRA's taxpayer-relief analysis misconstrued or mischaracterized your situation. In cases like these, judicial review allows Canada's Federal Court to examine the CRA's decision-making process.

This article provides an expert-level analysis by our top Canadian tax lawyers for Canadian taxpayers seeking to challenge a denied taxpayer-relief application by means of a judicial review application to the Federal Court of Canada. It aims to elucidate the intricate legal framework, procedural requirements, and strategic considerations inherent in this specialized domain of administrative law and tax law.

By demystifying the process, this article offers clarity on navigating the complexities of challenging discretionary administrative tax decisions by the Canada Revenue Agency. This article concludes by offering pro tax tips from our esteemed Canadian tax lawyers.

Overview of the CRA's Taxpayer-Relief Program

The Canada Revenue Agency's Taxpayer-Relief Program, often referred to as the Fairness Program, serves as a critical mechanism within the Canadian tax system, granting the CRA discretionary authority to grant relief from penalties and interest. The Taxpayer-Relief Program aims to assist taxpayers who, because of circumstances beyond their control, are unable to meet their tax obligations.

While the Taxpayer-Relief Program offers vital flexibility for taxpayers who have suffered from extraordinary circumstances, CRA errors, or financial hardship, the program does not extend to the forgiveness of the principal tax amount owed. (That is the exclusive purview of a Remission Order application.)

It grants the Canada Revenue Agency discretionary power in two critical areas: (1) the cancellation or waiver of penalties and interest that accrued during the last 10 calendar years, and (2) the issuance of tax refunds for tax returns filed after the normal reassessment period has expired.

The Legislative Basis for the CRA's Taxpayer-Relief Program

The Canada Revenue Agency's authority to grant taxpayer relief isn't merely an administrative policy but is firmly rooted in specific legislative provisions across various tax statutes. The following tax laws, for example, contain similar provisions granting the Canada Revenue Agency the authority to waive or cancel interest and penalties:

Income Tax Act (Canada): Subsection 220(3.1) permits the Canada Revenue Agency to waive or cancel interest and penalties relating to income tax.
Excise Tax Act (Canada): Subsections 281.1(1) and (2) empower the CRA to waive or cancel interest and specific penalties relating to GST/HST.
Softwood Lumber Products Export Charge Act, 2006 (Canada): Subsection 37(1) specifically permits the CRA to waive or cancel interest or penalties payable under section 64 of this Act, effective October 12, 2006.
Greenhouse Gas Pollution Pricing Act (Canada): Subsections 100(1) and 125(1) provide the Canada Revenue Agency with the authority to waive, cancel, or reduce interest and penalties under this Act.

This statutory foundation underpins the Taxpayer-Relief Program's legitimacy and defines its scope. In addition, the broad legislative embedding of the principle of taxpayer relief, extending across various tax and levy regimes, such as subsection 220(3.1) of Canada's Income Tax Act and section 281.1 of Canada's Excise Tax Act, demonstrates a consistent policy approach to fairness.

This indicates that the Canadian government has systematically integrated, across its diverse array of fiscal legislation, the concept of providing relief for uncontrollable circumstances. In other words, the Taxpayer-Relief Program's legislative foundation under the various tax statutes underscores the Canadian government's commitment to treating taxpayers fairly.

The Taxpayer-Relief Program: Relief Available & Distinction from Tax-Debt Forgiveness

The CRA's Taxpayer-Relief Program offers three primary types of relief:

The first is cancellation or waiver of penalties and interest. This is the most common and widely utilized aspect of the program. The CRA has the authority to reduce or entirely eliminate penalties and interest charges that have accrued due to non-compliance. This includes various penalties, such as those for late filing, failure to remit, and the compound daily interest charged on overdue tax amounts. The Taxpayer-Relief Program aims to alleviate the financial strain caused by these administrative charges when non-compliance is attributable to qualifying circumstances beyond a taxpayer's control.

The second type of relief is acceptance of late, amended, or revoked income tax elections. The Canada Revenue Agency has the discretion to accept certain income-tax elections, such as the section 85 election for a tax-deferred rollover, that the taxpayer failed to make on time. The CRA also has the power to accept an amended or revoked income-tax election. This type of relief proves particularly valuable for taxpayers who, because of unforeseen circumstances, missed deadlines for tax elections that would have significantly reduced their tax liability or optimized their tax planning.

The third type of relief that the CRA offers under the Taxpayer-Relief Program is the issuance of tax refunds beyond the normal reassessment periods. For individual taxpayers and for graduated-rate estates (GREs), the CRA can authorize a tax refund or a reduction in the amount payable for tax returns that were filed more than three years beyond the normal reassessment period. This allows taxpayers to claim previously unclaimed tax refunds that would otherwise have been statute-barred and therefore unavailable. But the Canada Revenue Agency can only grant this relief for tax years that fall within the 10 calendar years immediately preceding the calendar year in which the taxpayer makes the taxpayer-relief request.

One thing worth clarifying is the type of relief that the Taxpayer-Relief Program does not allow: the Taxpayer-Relief Program does not provide for the forgiveness or cancellation of the principal amount of tax owed. Taxpayers remain legally obligated to pay the underlying tax debt, regardless of whether the CRA decides to waive the penalties and interest.

This is a common misconception among taxpayers. While some sources might colloquially refer to "tax-debt reduction" under the Taxpayer-Relief Program, this description is incorrect. The core Taxpayer-Relief Program specifically targets administrative charges (penalties and interest) or adjustments to tax amounts through late elections or refunds; it doesn't target the original tax liability.

This distinction is paramount for ensuring that taxpayers pursue the correct avenue of relief for their situation. A taxpayer struggling with the principal amount of tax debt, for example, should pursue not the Taxpayer-Relief Program but a payment arrangement with CRA tax collectors or formal insolvency proceedings, such as a consumer proposal under Canada's Bankruptcy and Insolvency Act. In certain limited circumstances, taxpayers may also qualify for tax elimination through a Remission Order application.

The Taxpayer-Relief Program's 10-Year Relief Period

A critical aspect of the CRA's Taxpayer-Relief Program is the strict 10-year limitation period within which a taxpayer must make the taxpayer-relief request. The tax legislation that underlies the Taxpayer-Relief Program authorizes the Canada Revenue Agency to waive or cancel penalties and interest only if those amounts accrued within the 10 preceding calendar years. This means that even if the circumstances underlying your taxpayer-relief application would otherwise have qualified for relief, the CRA still cannot waive or cancel any penalties or interest that accrued more than 10 years before you submitted the application.

As a result, the Canada Revenue Agency will consider a taxpayer-relief application only if (1) it relates to a penalty that arose in a tax year or reporting period that ended within the 10 calendar years immediately preceding the year of the application; or (2) it relates to interest that accrued in a tax year or reporting period that ended within the 10 calendar years immediately preceding the year of the application. For example, a taxpayer-relief application made in 2023 must relate to penalties or interest for a tax year or reporting period ending in 2013 or later.

This hard 10-year cut-off creates a use-it-or-lose-it scenario, underscoring the critical importance of taxpayer awareness and timely action. While this 10-year limitation helps manage the CRA's administrative burden by restricting the review of very old cases, it can inadvertently penalize taxpayers who only discover issues much later, especially if they were previously unaware of their obligations or of the existence of the Taxpayer-Relief Program itself. For those reasons, a knowledgeable Canadian tax lawyer may recommend the use of a "protective" taxpayer-relief request.

A protective taxpayer-relief request is a sophisticated tax-administration strategy whereby taxpayers proactively request relief from penalties and interest even when they do not yet possess all the necessary documents or final details for a full taxpayer-relief application. This strategy acts as a precautionary step to ensure that the taxpayer-relief application is filed within the Taxpayer-Relief Program's 10-year limitation period, thereby preserving the taxpayer's ability to seek relief later.

Qualifying for Relief under the CRA's Taxpayer-Relief Program

The cornerstone of a successful taxpayer-relief application lies in demonstrating that your inability to meet your tax obligations stemmed from circumstances beyond your control. The CRA has identified four broad categories that may warrant relief under the Taxpayer-Relief Program: extraordinary circumstances, actions of the CRA, financial hardship, and other.

Extraordinary Circumstances. These are unforeseen and unavoidable events that directly impede a taxpayer's ability to comply with tax obligations. Some examples include:

Natural or human-made disasters, such as floods, fires, or other catastrophic events that disrupt a taxpayer's life and financial situation.
Civil disturbances or service disruptions, including events such as postal strikes that prevent timely tax filings or tax payments.
Serious illness or accident, including severe health problems, long-term illness, or an accident that impacts a taxpayer's ability to manage tax affairs or pay tax debts on time.
Serious emotional or mental distress, such as distress resulting from the death of an immediate family member.

The Canada Revenue Agency's taxpayer-relief officers may also grant relief if a taxpayer's authorized representative suffered from one of these extraordinary circumstances and thereby directly prevented the taxpayer from meeting tax obligations under Canada's Income Tax Act or Excise Tax Act.

Actions of the CRA. The Canada Revenue Agency may also grant taxpayer relief when a taxpayer incurs penalties or interest as a direct result of actions or inactions by the CRA itself. This demonstrates the CRA's internal recognition of its own potential for error and its commitment to rectify such situations. Some examples include:

Processing delays: Situations where delays by the CRA result in the taxpayer not being informed within a reasonable time that an amount was owing.
Errors in CRA materials or incorrect information: Situations where a taxpayer filed tax returns or made tax payments based on incorrect information provided by the CRA, either in its published materials or directly by CRA staff.
Undue delays in resolving tax objections or completing tax audits, in particular, situations where protracted delays result in additional interest.

The explicit inclusion of CRA actions as a qualifying circumstance directly contributes to the Canada Revenue Agency's stated goal of integrity and fairness, and it aligns with the principles enshrined in the Taxpayer Bill of Rights.

Inability to Pay / Financial Hardship. The Canada Revenue Agency's Taxpayer-Relief Program may waive or cancel some or all interest charges if the taxpayer demonstrates financial hardship or a genuine inability to pay outstanding tax debts.

To demonstrate financial hardship or a genuine inability to pay outstanding tax debts, an individual taxpayer (i.e., a natural person) must typically provide evidence showing that paying the interest would make it difficult for a prolonged period to provide basic necessities, such as food, medical care, transportation, or shelter. A corporate taxpayer operating a business must generally provide evidence showing that paying the interest would jeopardize employees' jobs, the continuity of business operations, or the welfare of the community as a whole.

Taxpayer-relief applications based on financial hardship typically require significant financial disclosure so that the CRA may assess the severity and prolonged nature of the hardship. This financial disclosure includes detailed statements of a taxpayer's household income, expenses, assets, and liabilities, and the taxpayer generally must also submit at least six months' worth of bank-account statements.

Other Circumstances. The agents at the Canada Revenue Agency's Taxpayer-Relief Program also maintain discretion to grant taxpayer relief for situations that don't neatly fit into any of the previous categories. These situations may include:

Situations where the taxpayer suffered unintended tax consequences despite taking reasonable steps to comply with tax legislation.
Situations involving transcription errors or calculation errors (e.g., using an incorrect book value when another was intended).
Situations where a taxpayer didn't know about a specific tax election and took remedial action as soon as possible after learning about the tax election.

Because of the Taxpayer-Relief Program's overarching requirement that the circumstances be "beyond the taxpayer's control," the Canada Revenue Agency grants taxpayer relief only if applicants meet a high evidentiary standard.

Taxpayers are expected to provide specific proof, including detailed information and comprehensive supporting documentation. To substantiate a taxpayer-relief request, taxpayers face a significant burden, which can be particularly challenging during periods of emotional distress or financial hardship. Luckily, early engagement of a Canadian tax lawyer can ease the evidentiary burdens and streamline the taxpayer-relief process, allowing taxpayers to attend to their pressing personal matters.

The CRA's Absolute Discretion to Provide Taxpayer Relief

The Canada Revenue Agency retains full discretion over the use of this legislative authority underlying the CRA's Taxpayer-Relief Program. This means the Canada Revenue Agency has no obligation to waive or cancel interest or penalties unless the CRA considers it appropriate to do so. This discretionary power, while allowing for flexibility in unique cases, also introduces a degree of subjectivity into the CRA's decision-making process.

Moreover, because the tax legislation gives the CRA complete decision-making discretion, the CRA's Taxpayer-Relief Program comes with a critical limitation: a taxpayer has no statutory right to dispute the CRA's decision to deny a taxpayer-relief request. This stands in stark contrast to CRA tax assessments and tax reassessments.

Taxpayers have a statutory right to dispute the merits of a CRA tax assessment by filing a notice of objection with the CRA's Appeals Division or by filing a notice of appeal with the Tax Court of Canada. Yet when it comes to the CRA's Taxpayer-Relief Program, taxpayers cannot directly challenge the merits of the Canada Revenue Agency's discretionary decision.

If a taxpayer is unsatisfied with the CRA's initial decision, the taxpayer's first avenue of recourse is to request a second administrative review by a different CRA officer at the Taxpayer-Relief Program. If the taxpayer remains unsatisfied upon receiving the CRA's second decision, the taxpayer may apply to Canada's Federal Court for judicial review of the CRA's decision. The court's role in a judicial review is to assess whether the CRA's decision was "reasonable," focusing on the process and rationality of the decision rather than re-evaluating the underlying tax facts.

The judicial-review process places an even higher demand on the taxpayer to ensure that the initial taxpayer-relief application is a meticulously crafted submission. Canadian taxpayers frequently find it challenging to navigate the complexity of the CRA's Taxpayer-Relief Program. While the CRA's Taxpayer-Relief Program is intended to be accessible and fair, the nuances of legislative interpretation, evidentiary requirements, and administrative processes often necessitate expert Canadian tax lawyer guidance.

Retaining an experienced Canadian tax lawyer can significantly improve the chances of a successful taxpayer-relief application. If you seek relief from interest or tax penalties and want to apply for the Canada Revenue Agency's Taxpayer-Relief Program, contact one of our top Canadian tax lawyers today. We possess the expertise to assess your eligibility, prepare a compelling taxpayer-relief application, gather and organize the necessary supporting documentation, handle communications with the Canada Revenue Agency's taxpayer-relief officers, and, if needed, apply to Canada's Federal Court for judicial review.

The Path to Judicial Review: From CRA Denial to the Federal Court of Canada

The CRA's denial of your taxpayer-relief application doesn't necessarily mark the end of the road. Canadian administrative law provides an established mechanism for challenging such discretionary decisions: judicial review.

Judicial review is a cornerstone of Canadian administrative law, serving as a fundamental mechanism through which courts ensure that administrative decision-makers, such as the Canada Revenue Agency, operate within the bounds of the law and exercise their powers in a manner consistent with the rule of law. It's a constitutionally guaranteed power vested in provincial superior courts and in Canadian federal courts, enabling them to oversee lower tribunals and administrative bodies to ensure adherence to legal principles and prevent jurisdictional overreach.

The primary objectives of judicial review are to enforce the rule of law, hold public decision-makers accountable, and safeguard individuals from arbitrary executive action. Its purpose is to overturn an invalid government decision, compel the government to act where required by law, or prohibit it from acting beyond its authority. Yet it's imperative to understand that judicial review is fundamentally distinct from a re-hearing of the original decision on its merits; it does not involve a re-evaluation of the facts or a substitution of the reviewing court's judgment for that of the administrative body. Furthermore, it's not a process designed to seek compensation, such as monetary damages.

Moreover, taxpayers should differentiate between a judicial-review application to Canada's Federal Court and a tax appeal to the Tax Court of Canada. These are distinct legal avenues, each serving different purposes, operating under different jurisdictions, and governed by unique procedural rules.

Judicial review primarily addresses the procedural fairness and legality of a CRA decision. It scrutinizes how the decision was made—specifically, whether the Canada Revenue Agency acted within its legal authority, adhered to principles of natural justice, and rendered a reasonable decision based on the evidence available to it. A defining characteristic of judicial review is that new evidence is generally not permitted; the court's review is confined to the administrative record that was before the Canada Revenue Agency's administrative decision-maker.

Canada's Federal Court holds exclusive jurisdiction over judicial-review applications pertaining to decisions rendered by federal boards, federal commissions, or other federal tribunals, including the Canada Revenue Agency. This jurisdictional exclusivity means that any challenges to discretionary decisions made by the CRA, such as the denial of a taxpayer-relief application, must be brought before the Federal Court of Canada.

A Tax Court appeal, by contrast, examines the substance or merits of a tax assessment, focusing on whether the taxpayer genuinely owes the amount of tax that the CRA assessed. Unlike judicial review, a Tax Court appeal may allow for the consideration of fresh evidence—e.g., evidence that wasn't available during the preceding tax audit that led to the disputed tax assessment. The Tax Court of Canada holds exclusive jurisdiction to hear appeals concerning the merits and correctness of a tax assessment or tax reassessment.

Initiating a Judicial-Review Application for Denied Taxpayer Relief

As a general rule, taxpayers must first exhaust all internal administrative remedies before applying to the Federal Court of Canada for judicial review. This mandates that, following the CRA's initial denial of the taxpayer-relief request, a taxpayer must first apply for a second-level review by the Canada Revenue Agency's Taxpayer-Relief Program. This step is not merely a formality but a critical component of the process. This is because the Federal Court's review will primarily revolve around the administrative record that was before the CRA decision-maker at the time the decision was rendered.

Moreover, once the taxpayer has exhausted the administrative options, the taxpayer must promptly file the judicial-review application. Per subsection 18.1(2) of the Federal Courts Act, the deadline to apply for judicial review is within 30 days of the date that the Canada Revenue Agency issued its decision.

Although a taxpayer may request an extension beyond this initial 30-day deadline by filing a motion with the Federal Court of Canada, the court doesn't readily grant extensions. To gain an extension, the taxpayer must demonstrate (i) that the taxpayer had a continuing intention to pursue the judicial-review application, (ii) that there's some potential merit to the judicial-review application, (iii) that the delay hasn't prejudiced the Canada Revenue Agency, and (iv) that the taxpayer has a reasonable explanation for the delay: Larkman v Canada, 2014 FCA 299. Hence, a taxpayer who has missed the 30-day judicial-review deadline must ensure that the extension-of-time motion is meticulously prepared, providing compelling and justifiable reasons for the delay.

For assistance with preparing your judicial-review application or with preparing an extension-of-time motion, schedule a consultation with one of our expert Canadian tax-litigation lawyers today.

The Substance and Standard of Judicial Review: Grounds for Review, The Reasonableness Test & Remedies Available

Subsection 18.1(4) of the Federal Courts Act enumerates the specific grounds upon which a CRA decision can be challenged through judicial review. These grounds focus on the legality and procedural propriety of the administrative decision, rather than a re-evaluation of the underlying facts or merits.

The grounds include:

Acting without or beyond jurisdiction or refusing to exercise jurisdiction: This ground applies if the CRA decision-maker exceeded the powers granted by law, acted without any legal authority, or improperly declined to use statutory discretion when required to do so.
Failure to observe natural justice or procedural fairness: This refers to instances where the CRA failed to adhere to fundamental principles of fairness in its decision-making process. These principles typically include the right to be heard, the right to an impartial decision-maker, and the right to know the case against oneself and have an opportunity to respond.
Error in law: This ground allows for judicial review if the CRA made a mistake in interpreting or applying the relevant legal provisions, regardless of whether the error is evident on the face of the administrative record.
Erroneous finding of fact made in a perverse or capricious manner or without regard for material: This ground addresses factual errors made by the CRA that are so unreasonable as to suggest a lack of rational basis, an arbitrary approach, or a complete disregard for the evidence presented.
Acting, or failing to act, by reason of fraud or perjured evidence: This is a serious ground, applicable when the CRA's decision was influenced by fraudulent acts or false testimony.
Acting in any other way that was contrary to law: This is a residual ground that captures any other manner in which the CRA's actions or inactions violated applicable law.

The standard of review dictates the level of deference a court will show to an administrative decision-maker's ruling. In Canadian administrative law, the Supreme Court of Canada's landmark decision in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, significantly altered the judicial-review landscape. It established a presumption that the standard of review for most administrative decisions, including those of the Canada Revenue Agency, is reasonableness.

In Vavilov, the Supreme Court of Canada articulated the several principles governing a judicial-review application. In the context of challenging the Canada Revenue Agency's decision to deny taxpayer relief, the principles are as follows:

The party challenging the CRA's taxpayer-relief decision bears the burden of showing that the decision is unreasonable.
Before the Canada Revenue Agency's decision can be set aside on this basis, the reviewing court must be satisfied that there are sufficiently serious shortcomings in the decision such that it cannot be said to exhibit the requisite degree of justification, intelligibility, and transparency.
Any alleged flaws or shortcomings in the CRA's taxpayer-relief decision must be more than merely superficial or peripheral to the merits of the decision.
It would be improper for a reviewing court to overturn the Canada Revenue Agency's taxpayer-relief decision simply because its reasoning exhibits a minor misstep. The taxpayer applying for judicial review must satisfy the court that the shortcomings or flaws in the CRA's taxpayer-relief decision are sufficiently central or significant to render the decision unreasonable.

The Supreme Court of Canada also identified two types of fundamental flaws that would make the Canada Revenue Agency's taxpayer-relief decision unreasonable. The first fundamental flaw is "a failure of rationality internal to the reasoning process"—i.e., incoherent internal reasoning. The reviewing court must be able to trace the CRA taxpayer-relief agent's reasoning without encountering any fatal flaws in its overarching logic, and the court must be satisfied that "there is [a] line of analysis within the given reasons that could reasonably lead the [Canada Revenue Agency] from the evidence before it to the conclusion at which it arrived." By contrast, reasons that "simply repeat statutory language, summarize arguments made, and then state a peremptory conclusion" will rarely assist a reviewing court in understanding the rationale underlying the CRA's decision and "are no substitute for statements of fact, analysis, inference and judgment."

The Canada Revenue Agency's taxpayer-relief agent's decision will be unreasonable if the reasons for it, read holistically, fail to reveal a rational chain of analysis or if they reveal that the decision was based on an irrational chain of analysis. The CRA's taxpayer-relief decision will also be unreasonable where the conclusion reached cannot follow from the analysis undertaken or if the reasons read in conjunction with the record don't make it possible to understand the CRA's reasoning on a critical point.

Likewise, the taxpayer may challenge the internal rationality of the CRA's taxpayer-relief decision if the reasons exhibit clear logical fallacies, such as circular reasoning, false dilemmas, unfounded generalizations, or an absurd premise. While this isn't an invitation to hold the Canada Revenue Agency's decision-makers to the formalistic constraints and standards of academic logicians, the reviewing court must ultimately be satisfied that the CRA's reasoning "adds up."

The second fundamental flaw that the Supreme Court identified arises when the CRA's taxpayer-relief decision is "in some respects untenable in light of the relevant factual and legal constraints that bear on it"—i.e., the decision lacks legal or factual justification. According to the Supreme Court of Canada, "a decision, to be reasonable, must be justified in relation to the constellation of law and facts that are relevant to the decision. Elements of the legal and factual contexts of a decision operate as constraints on the decision maker in the exercise of its delegated powers." Hence, when faced with a judicial-review application regarding the CRA's taxpayer-relief decision, the reviewing court must evaluate the legal and factual elements constraining the CRA's decision, for example:

The governing statutory scheme;
Other relevant statutory or common law;
The principles of statutory interpretation;
The evidence before the CRA's taxpayer-relief agent;
The facts of which the CRA's taxpayer-relief agent may take notice;
The legal submissions of the parties;
The past practices and decisions of the Canada Revenue Agency's Taxpayer-Relief Program; and
The potential impact of the Canada Revenue Agency's taxpayer-relief decision on the individual to whom it applies.

A reviewing court may find that the CRA's decision was unreasonable when examined against these contextual considerations. These elements necessarily interact with one another. For example, if the CRA departs from its own longstanding practices, it bears the burden of explaining that departure in its reasons; a failure to do so may render the decision unreasonable.

Finally, when considering whether to pursue a judicial-review application for denied taxpayer relief, taxpayers should appreciate the nature of the remedy that this process offers. In a judicial review of a denied taxpayer-relief application, the Federal Court of Canada's powers are generally limited to reviewing the legality and reasonableness of the Canada Revenue Agency's taxpayer-relief decision. The court typically cannot substitute its own decision for that of the CRA. Instead, the most common remedy is to quash the impugned decision and direct the matter back to the CRA's Taxpayer-Relief Program for reconsideration by another delegated official.

This limitation stems from the fundamental distinction between judicial review and a tax appeal. Judicial review is concerned with whether an administrative body, such as the Canada Revenue Agency, acted within its legal and procedural limits and made a reasonable decision; judicial review isn't concerned with re-making the decision itself. The court ensures that the CRA exercised its discretion properly, but the court doesn't usurp that discretion. Therefore, even if a judicial-review application is successful, it doesn't mean that the taxpayer automatically gets the relief that the taxpayer initially sought under the CRA's Taxpayer-Relief Program.

It simply means that the CRA must review the taxpayer-relief application again, this time adhering to proper legal principles and procedural fairness. A weak underlying case for taxpayer relief, even if the CRA's initial decision was unreasonable, may ultimately lead to a second denial upon redetermination. That is, the CRA will issue another rejection, and so long as the CRA's new reasons remedied the defects that the Federal Court had identified in the CRA's first taxpayer-relief decision, the second rejection will be reasonable.

If the underlying taxpayer-relief application is so weak that the reviewing court believes the taxpayer's request can't possibly succeed even upon reconsideration, the court may even refuse to send the matter back to the CRA.

Pro Tax Tips: The Importance of Building the Administrative Record & The Need for Effective Representation by an Expert Canadian Tax-Litigation Lawyer

Seeking judicial review for a denied taxpayer-relief application in Canada is a complex and specialized legal undertaking that demands a thorough understanding of administrative-law principles and strict adherence to procedural requirements.

The CRA's discretionary decisions, while subject to judicial oversight, are reviewed on a deferential standard of reasonableness. This means that the Federal Court of Canada will scrutinize the CRA's decision-making process, ensuring it was justified, transparent, intelligible, and based on a rational chain of analysis, rather than substituting the court's own judgment on the merits.

A critical takeaway is the paramount importance of the administrative record. Judicial review is not a re-hearing, and new evidence is generally not admissible. Taxpayers must therefore meticulously prepare and submit all relevant evidence and legal arguments during the initial taxpayer-relief application and, crucially, during the mandatory second-level review by the Canada Revenue Agency. This administrative stage is the taxpayer's primary opportunity to build a comprehensive case that will form the sole basis of any subsequent challenge during judicial review.

The complexity of navigating the Canada Revenue Agency's Taxpayer-Relief Program—particularly, in preparing a compelling relief application and understanding the nuances of legislative interpretation and evidentiary requirements—necessitates guidance from a skilled Canadian tax lawyer. Moreover, as with all other forms of Canadian tax litigation, judicial review of CRA conduct involves numerous procedural rules governing almost every aspect of the lawsuit, including specific deadlines, acceptable evidence, settlement negotiations, and the contents of pleadings.

What's more, the substantive administrative-law issues and underlying tax issues are often themselves very complicated, involving intricate, sometimes convoluted common-law principles and legislation. As a result, Canadian taxpayers who represent themselves will typically be at a heavy disadvantage against the Canada Revenue Agency's Canadian tax-litigation lawyers at the Department of Justice.

Instead of taking your chances on your own, consult one of our expert Canadian tax-litigation lawyers who can ensure that your initial taxpayer-relief application makes a compelling case, buttress the administrative record during the second administrative review, simplify the judicial-review process, review your evidence, devise a litigation strategy for your case, and represent you before the Federal Court of Canada during the judicial-review hearing.

FREQUENTLY ASKED QUESTIONS

Question: I hear that the CRA has a Taxpayer-Relief Program. What's this program about?

Answer: The Canada Revenue Agency's Taxpayer-Relief Program, often referred to as the Fairness Program, serves as a critical mechanism within the Canadian tax system, granting the CRA discretionary authority to grant relief from penalties and interest. The Taxpayer-Relief Program, while it does not cancel taxes owing, aims to assist taxpayers who, because of circumstances beyond their control, are unable to meet their tax obligations.

The CRA's Taxpayer-Relief Program offers three primary types of relief. The first is cancellation or waiver of penalties and interest. The second type of relief is acceptance of late, amended, or revoked income tax elections. The third type of relief that the CRA offers under the Taxpayer-Relief Program is the issuance of tax refunds beyond the normal reassessment periods. But the Taxpayer-Relief Program does not provide for the forgiveness or cancellation of the principal amount of tax owed. Taxpayers remain legally obligated to pay the underlying tax debt, regardless of whether the CRA decides to waive the penalties and interest.

Question: What is judicial review?

Answer: Judicial review is a cornerstone of Canadian administrative law, serving as a fundamental mechanism through which courts ensure that administrative decision-makers, such as the Canada Revenue Agency, operate within the bounds of the law and exercise their powers in a manner consistent with the rule of law. It's a constitutionally guaranteed power vested in provincial superior courts and in Canadian federal courts, enabling them to oversee lower tribunals and administrative bodies to ensure adherence to legal principles and prevent jurisdictional overreach.

Question: What's the difference between judicial review and a Tax Court appeal?

Answer: These are distinct legal avenues, each serving different purposes, operating under different jurisdictions, and governed by unique procedural rules.

Question: The Canada Revenue Agency denied my taxpayer-relief application. Am I a good candidate for judicial review?

Answer: Possibly. As a general rule, taxpayers must first exhaust all internal administrative remedies before applying to the Federal Court of Canada for judicial review. This mandates that, following the CRA's initial denial of the taxpayer-relief request, a taxpayer must first apply for a second-level review by the Canada Revenue Agency's Taxpayer-Relief Program. This step is not merely a formality but a critical component of the process. This is because the Federal Court's review will primarily revolve around the administrative record that was before the CRA decision-maker at the time the decision was rendered.

Finally, when considering whether to pursue a judicial-review application for denied taxpayer relief, taxpayers should appreciate the nature of the remedy that this process offers. In a judicial review of a denied taxpayer-relief application, the Federal Court of Canada's powers are generally limited to reviewing the legality and reasonableness of the Canada Revenue Agency's taxpayer-relief decision. The court typically cannot substitute its own decision for that of the CRA. Instead, the most common remedy is to quash the impugned CRA decision and direct the matter back to the CRA's Taxpayer-Relief Program for reconsideration by another delegated CRA official.

Therefore, even if a judicial-review application is successful, it doesn't mean that the taxpayer automatically gets the relief that the taxpayer initially sought under the CRA's Taxpayer-Relief Program. It simply means that the CRA must review the taxpayer-relief application again, this time adhering to proper legal principles and procedural fairness.

A weak underlying case for taxpayer relief, even if the CRA's initial decision was unreasonable, may ultimately lead to a second denial upon redetermination. That is, the CRA will issue another rejection, and so long as the CRA's new reasons remedied the defects that the Federal Court had identified in the CRA's first taxpayer-relief decision, the second rejection will be reasonable. If the underlying taxpayer-relief application is so weak that the reviewing court believes the taxpayer's request can't possibly succeed even upon reconsideration, the court may even refuse to send the matter back to the CRA.

To determine whether judicial review is right for you, schedule a consultation with one of our expert Canadian tax-litigation lawyers today.

Take Note

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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