Executive Summary: Key Legal and Evidentiary Issues

• Applicant sought a writ of mandamus to compel CRA assessment of a purported second tax return for the 2023 tax year, filed after submitting a consumer proposal

• Consumer proposal filers under the Bankruptcy and Insolvency Act are not classified as "bankrupts" and therefore cannot file split-year tax returns

• Only individuals who are legally bankrupt may have their taxation year divided into pre- and post-bankruptcy periods under subsection 128(2) of the Income Tax Act

• The CRA correctly treated the Applicant's second filing as a T1 Adjustment request rather than a distinct income tax return

• No statutory "public legal duty to act" existed for the CRA to assess the purported second return, failing the first prong of the Apotex mandamus test

• Despite the Applicant being a Certified Professional Accountant who teaches tax, he admitted no legal authority supports his position

Background and filing of the consumer proposal

Benny Isla filed a consumer proposal under section 66.13 of the Bankruptcy and Insolvency Act on November 23, 2023, to manage his debts. Shortly thereafter, on November 29, 2023, he filed his 2023 income tax return declaring income from January 1, 2023 to November 23, 2023. The Canada Revenue Agency assessed this return and issued a Notice of Assessment on March 14, 2024, determining that Isla owed $25,828.68.

The disputed second tax return

On or around May 1, 2024, Isla purported to file a second income tax return for the same 2023 tax year, specifically covering the period from November 24, 2023 to December 31, 2023. This second filing suggested he should receive an income tax refund of $2,964.93. The CRA's records indicate this filing was received on October 10, 2024, and acknowledged it as a "T1 adjustment request," noting delays in processing due to a higher than normal number of requests. The CRA's Progress History records indicate that on May 1, 2024, February 10, 2025, April 1, 2025 to August 12, 2025, and November 10, 2025 the Applicant's adjustment review was either in progress or required additional review.

The Applicant's position and legal arguments

Isla sent letters responding to CRA requests for further information on October 10, 2024, January 20, 2025, and June 27, 2025, and in each sought updates on what he termed the assessment of the Second Tax Return. He argued that the CRA had "erroneously classified" his second income tax return as a "request to change" the 2023 return, when in his view it represented a "distinct legal status of the post-arrangement tax period." He maintained that the returns were intended to reflect income and allowable deductions separately before and after the legal arrangement. On July 9, 2025, Isla filed an application with the Federal Court for a writ of mandamus and a declaration that the CRA had failed to comply with its statutory duty under subsection 152(1) of the Income Tax Act to assess his return "with all due dispatch."

The legal framework for mandamus and split-year taxation

The Court applied the eight-part conjunctive test established in Apotex Inc v Canada (Attorney General), which requires, among other conditions, that there must be a public legal duty to act that the decision maker failed to satisfy. Under subsection 152(1) of the Income Tax Act, the Minister shall examine and assess a taxpayer's return of income "with all due dispatch." However, subsection 128(2) of the ITA, which permits a taxation year to be split into two periods, applies only where an individual has become a "bankrupt" as defined in section 2 of the BIA. A "bankrupt" means a person who has made an assignment or against whom a bankruptcy order has been made. The Court cited the Federal Court of Appeal's decision in Canada v Marchessault, which specifically found that the ITA provision deeming a current taxation year to end on the day immediately before an individual becomes a bankrupt does not apply to consumer proposals.

The distinction between bankruptcy and consumer proposals

The Court noted the Supreme Court of Canada's description of consumer proposals in Piekut v Canada (National Revenue) as a procedure under the BIA allowing insolvent individuals who meet certain conditions to propose an arrangement to pay their creditors a percentage of what they owe, or to pay their debts over an extended period, or both, subject to the supervision of an administrator. Consumer proposals are generally quicker, more efficient, and less costly than bankruptcy, and many consumer debtors prefer a consumer proposal to avoid the stigma of bankruptcy and because it often allows a debtor to keep their house or apartment, vehicle, or other property. However, an individual who has made a consumer proposal simply does not have divided "pre-proposal" and "post-proposal" tax periods and accordingly cannot file more than one tax return in a taxation year.

The ruling and outcome

The Court dismissed the application for mandamus and the declaration. Justice Thorne found that Isla clearly admitted during the hearing that while he made a consumer proposal with respect to his debts, he is not a bankrupt. When directly asked, the Applicant also eventually admitted that there is no authority that he knows of that would allow a person who has filed a consumer proposal to then be allowed to file a second tax return. The Court held that since Isla did not have the right to file a second income tax return in 2023, his second filing was a nullity carrying no obligation for the CRA to assess it at all, much less "with all due dispatch." Consequently, there was no public legal duty to act, and the first condition of the mandamus test was not satisfied. Both parties requested costs; however, after consideration of all factors, the Court concluded that an award of costs would not be appropriate, and none were ordered. The Attorney General of Canada was the successful party, but no monetary amount was ordered or awarded in this matter.