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When a Canadian taxpayer tried to change his 2004 tax return, CRA declined and pushed for penalties plus interest while ignoring his change request for 10 years. Judicial review sided with the taxpayer.
In 2005, anticipating that his 2004 reportable income would be nearly double the amount originally declared, Mr. Rawlings, the taxpayer, filed an amended return for 2004. The expected additional income did not materialize.
In 2011, he submitted a further amended 2004 return to reinstate his original return and the substantially lower tax liability it reflected. A CRA agent denied the request and closed the file in 2012.
The taxpayer continued to seek relief from the CRA and, successfully obtained relief from penalties and interest for late filing. He subsequently applied to the Tax Court; however, by judgment dated November 16, 2022, the Court held that it lacked jurisdiction to grant the relief sought—namely, an order compelling the Minister to accept the amended 2004 return.
In February 2023, the taxpayer renewed his request to amend his 2004 return, submitting a "Request for Taxpayer Relief – Cancel or Waive Penalties and Interest" form together with supporting documentation aimed at having the CRA process the proposed amendments. He also provided medical evidence to explain delays on his part.
By letter dated October 1, 2024, a second-level CRA decision-maker denied the request, focusing primarily on penalties and interest, influenced by the form used. The issue was whether the CRA's decision was reasonable and procedurally fair.
The application for judicial review was granted with the matter remitted to the CRA for expedited redetermination. The taxpayer was entitled to a justified, intelligible, and transparent decision that directly addressed his request to amend his 2004 return. As the decision failed to meet that standard, it was unreasonable.
The Federal Court declined to rule on procedural fairness. It further directed that, if a different form was required, the CRA must provide the appropriate form and instructions regarding where it should be submitted.
Issues to be decided
Mr. Rawlings contends that the Second Reviewer acted unreasonably and in a procedurally unfair manner by concentrating on penalties and interest while failing to address his actual request to amend his return.
The parties agreed that the applicable standard of review for the second reviewer's decision is reasonableness. A decision is reasonable if it is justified in light of the facts and the legal constraints governing the decision-maker (Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 at para. 85). Reasonableness requires that the decision be justified, intelligible, and transparent (Vavilov at para. 99).
By contrast, whether a decision was reached in a procedurally fair manner attracts no deference. Reviewing courts must determine for themselves whether the procedure followed was fair in all the circumstances, applying a standard akin to correctness (Canadian Pacific Railway Company v. Canada (Attorney General), 2018 FCA 69 at paras. 54, 56).
The court found the CRA's decision was procedurally unfair
In the court's view, the taxpayer submitted a request to the CRA using a Taxpayer Relief form, but his detailed submissions made clear that he was seeking permission to amend his 2004 tax return—not further relief from penalties or interest, nor a challenge to the 2007 reassessment. He explained that his filing error stemmed partly from confusion following severe injuries from a car accident and years of treatment, and that the resulting inflated tax liability caused significant financial hardship. However, the CRA's second reviewer treated the taxpayer's request as an impermissible repeat application for penalty and interest relief already granted in 2007. The court found this unreasonable. Under Vavilov, an administrative decision must meaningfully address the key issues raised. Here, the CRA failed to properly consider Mr. Rawlings' actual request to amend his return.
The Canadian tax litigation lawyer acting on behalf of the CRA argued that the CRA lacked authority to allow the amendment under the taxpayer relief provisions and was not required to address it because the wrong form was used. The court rejected this, holding that the taxpayer was entitled to a justified and transparent decision responding directly to his request. The decision was therefore unreasonable. Given the lengthy history of the matter and the ongoing financial impact on his household, the court ruled that expedited treatment was necessary to avoid further delay.
Pro tax tips – the standard of reasonableness is based on facts and the law
Overall, the court found the CRA's refusal to allow Mr. Rawlings to amend his 2004 tax return unreasonable because the reconsideration must address the amendment request the taxpayer first made in 2011 and has consistently pursued. If a different form is required to process the request under subsection 152(4.2) of the Income Tax Act, the CRA must provide him with the correct form and submission details.
FAQ:
What is a judicial review application?
A judicial review application in Canada is a court proceeding used to challenge decisions made by administrative bodies—such as tribunals, boards, or government officials—rather than courts. It ensures decisions are fair, reasonable, and lawful. The court typically reviews for errors of law or jurisdiction rather than re-arguing facts.
What is the standard of judicial review application?
The standard of judicial review in Canada is primarily reasonableness (the default), where courts defer to the administrative decision-maker unless the decision lacks a justified, transparent, and intelligible basis. Correctness is applied in exceptional circumstances, such as constitutional questions, jurisdictional boundaries, or general legal questions of central importance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
