Judicial Review with Teeth

Mokrycke (2020 FC 1027) is the first reported case where a taxpayer has been successful in requesting a judicial review of the CRA’s refusal to grant a remission order. This forms part of a series of cases, following Vavilov (2019 SCC 65), in which the CRA’s decisions have been faulted (for example, Sangha, 2020 FC 712). Paragraphs 39 and 65 of the Mokrycke decision make it clear, using quotations from Vavilov, that henceforth the CRA will have to provide clear, logical, and convincing reasons for its discretionary decisions if they are to pass judicial review. The Mokrycke decision further suggests, albeit in obiter, that the CRA should be more transparent about its decision-making guidelines, lest it be open to attack on the grounds of natural justice and procedural fairness.

The taxpayer, who represented himself at the TCC, was an architect. An auditor concluded that he had underreported his income and deducted unsupported expenses. During the audit, he was immersed in health issues, family-law disputes, and financial strain, including the potential for two foreclosures and the failure of a major project. His accountant filed a notice of objection, but the accountant abandoned the matter for personal reasons. A second accountant provided a superficial submission to the CRA Appeals Division. The CRA issued a notice of confirmation, after which the second accountant took no further action. The taxpayer allowed the deadline to appeal to the TCC to lapse. A taxpayer relief application was then filed by the taxpayer, but it was unsuccessful. The taxpayer then applied for remission pursuant to the Financial Administration Act.

Remission of tax and penalties may be granted where “collection . . . is unreasonable or unjust or . . . it is otherwise in the public interest.” Internal CRA guidelines indicate that remission should be recommended where there is (1) extreme hardship, (2) financial setback coupled with extenuating factors, (3) incorrect action or advice on the part of CRA officials, or (4) an unintended result of the legislation. These guidelines are said to be illustrative but not exhaustive.

The grounds of the application included extenuating circumstances, significant financial hardship, and incorrect action on the part of CRA officials. The CRA refused to recommend remission, citing the absence of any substantive representations in response to the audit proposal, the absence of evidence that the taxpayer’s health difficulties affected his ability to engage in the audit and objection processes, and the contention that the failures of a representative are a matter to be addressed between the taxpayer and the representative alone. The taxpayer sought judicial review.

The FC found that, while remission was an extraordinary measure, Vavilov affirmed the need for CRA decisions to be both justifiable and properly justified in reasons provided to a party subject to the decision. The CRA did not meaningfully address the argument that it failed to consider the taxpayer’s extenuating circumstances. This was not an attempt to craft a parallel objection or appeal procedure: the CRA’s obligation was to consider whether the party seeking remission could not use those procedures owing to extenuating circumstances. Furthermore, it was no answer to the taxpayer’s contention that he was reasonable in his reliance on tax professionals to merely state that errors of a tax professional are a matter to be settled between adviser and client. The decision was not properly justified and was therefore unreasonable.

Neither party made submissions with respect to whether the CRA had also breached the requirements of natural justice and procedural fairness, but the FC remarked in obiter that the taxpayer had never been provided with the guidelines and that the CRA’s allusion to the option of remission in its correspondence was trite and cursory. The guidelines themselves were marked “For CRA use only.”

Ashvin R. Singh
Felesky Flynn LLP, Edmonton

Canadian Tax Focus
Volume 11, Number 1, February 2021
©2021, Canadian Tax Foundation