Executive Summary: Key Legal and Evidentiary Issues

• Appeal involves a repeat late-filing penalty imposed under subsection 162(2) of the Income Tax Act.

• Appellant claims due diligence during three periods: before the filing due date, the period in the CRA’s demand, and the intervening "Interim Period".

• The CRA’s pandemic-related “Relief Policy” did not apply, as the Appellant’s return was due before the relief period began.

• Requested undertakings concerning CRA policy rationale and issuance of reminders were found to be irrelevant.

• Court held that CRA’s views or internal reasoning during the pandemic are not pertinent to assessing objective due diligence.

• Motion to compel was dismissed; judicial notice of pandemic-related disruptions may serve as alternative evidentiary support.

Background and tax return delay

Brant Investments Ltd. was required to file its tax return for the year ending June 30, 2019, by December 31, 2019. The company did not meet this deadline. In March 2021, the Minister of National Revenue issued a demand to file under subsection 150(2) of the Income Tax Act, imposing a specific deadline. Brant Investments eventually filed its return but did so after the deadline in the demand. Consequently, the Minister assessed a repeat late-filing penalty under subsection 162(2), prompting the company to appeal.

Claim of due diligence and relevant timeframes

In its appeal, Brant Investments argued it had exercised due diligence during three distinct timeframes: (a) the period between its year-end and its filing due date, (b) the period specified in the CRA’s demand to file, and (c) the period between those two—the “Interim Period.” This Interim Period included the onset of the COVID-19 pandemic.

The CRA's pandemic Relief Policy and the undertakings requested

The Canada Revenue Agency (CRA) had implemented what the court referred to as the “Relief Policy” during the early months of the pandemic. This policy effectively extended the filing deadlines for certain returns due between March 18 and September 30, 2020, and waived penalties if those returns were filed within that window.

Although the Relief Policy period fell within the Interim Period, it did not apply to Brant Investments, as the company’s return was due before March 18, 2020.

During discovery, Brant’s counsel requested two undertakings: (1) that the CRA’s nominee make inquiries and provide the rationale behind the agency’s decision to extend deadlines and waive penalties under the Relief Policy; and (2) that the nominee determine whether the CRA issued any reminders (Form TX11) or demands to file (Form TX14) during the Relief Period. The CRA refused both, asserting the undertakings were irrelevant.

Court's reasoning on relevance and dismissal of the motion

The court applied the relevance test from Lehigh Cement Limited v. The Queen, which permits discovery questions that might help advance a party’s case or lead to a train of inquiry with that potential. While the Respondent accepted that the Appellant’s diligence during the Interim Period was a relevant issue for discovery, the court agreed with the Respondent that the requested undertakings themselves were not relevant.

Justice Graham emphasized that the objective test for due diligence, as set out in Buckingham v. The Queen, focuses on how a reasonable taxpayer would act in comparable circumstances, not on the CRA’s own views or policies. Since Brant’s return was due two and a half months before the Relief Policy applied, and there was no indication that the CRA considered the policy in handling Brant’s assessment or objection, the policy’s rationale was irrelevant.

Similarly, the CRA’s decision to send or withhold reminders or demands during the Relief Period for other taxpayers was not connected to Brant’s situation and did not shed light on its diligence.

Alternative evidentiary approach and conclusion

Recognizing the practical difficulty in proving what taxpayers faced during the early pandemic, Justice Graham stated he would be willing to take judicial notice of several well-known facts. These included the general disruption caused by the pandemic, the lack of a vaccine, heightened caution for the elderly, and the early-stage adoption of online tools such as Zoom. He also noted that, if Brant preferred not to rely on judicial notice, it could use a request to admit to establish uncontested facts about the period.

The motion to compel the CRA to provide the two requested undertakings was dismissed, and costs were ordered to be in the cause.

No monetary award, damages, or specific cost amount was granted or ordered.