Executive Summary: Key Legal and Evidentiary Issues

• Errol McHayle sought judicial review of the CRA's denial of his request for relief from arrears and instalment interest for the 2021 and 2022 taxation years under subsection 220(3.1) of the Income Tax Act.

• The Applicant argued the CRA failed to exercise due diligence by not catching his inadvertent error on his 2021 tax return during initial assessment, resulting in $21.80 in arrears interest.

• Instalment interest for 2022 arose from T5 investment income attributed to the Applicant as notional interest on guaranteed investment certificates not yet paid to him, which he contended should not trigger instalment obligations.

• Procedural fairness was challenged based on alleged assurances from a Taxpayer Relief Officer that she would recommend interest relief, only for the opposite recommendation to be made.

• The Applicant's Supplemental Affidavit was ruled inadmissible for failing to comply with filing requirements and the general evidentiary rule on judicial review, though the prior McHayle decision attached thereto was treated as a Court authority properly before the Court.

• Application was dismissed as the Court found the Decision to be reasonable, transparent, and intelligible, and no breach of procedural fairness was established.

Background and facts of the case

Errol McHayle, a self-represented applicant, filed this application for judicial review before the Federal Court of Canada challenging a decision by a delegate of the Minister of National Revenue, dated March 13, 2025, which denied his request for relief from interest under subsection 220(3.1) of the Income Tax Act. The case involved interest charges spanning two taxation years, 2021 and 2022, each arising from distinct circumstances. The hearing took place in Toronto, Ontario on January 29, 2026, before Justice Richard F. Southcott.

The 2021 taxation year interest

After Mr. McHayle filed his 2021 tax return, the CRA initially assessed it and then performed a reassessment, uncovering an error the Applicant had inadvertently made when manually completing his return. This reassessment resulted in a balance owing and arrears interest in the amount of $21.80. Mr. McHayle argued that the CRA bore some responsibility for not catching his error during its initial review before issuing the notice of assessment. He first requested interest relief in a letter dated December 28, 2022, which the CRA denied in a first-level review on July 13, 2023, explaining that it is the responsibility of the taxpayer to accurately comply with their obligations and that the CRA conducts only a limited review before issuing an initial assessment.

The 2022 taxation year interest and the notional income argument

For the 2022 taxation year, the CRA assessed Mr. McHayle with a balance owing of $9,127.13, which included both arrears interest and instalment interest resulting from his failure to make instalment payments. The Applicant subsequently made periodic payments and retired this balance. The CRA had sent the Applicant instalment reminders in February and August 2022, but he did not make any instalment payments that year. Mr. McHayle's central argument regarding 2022 was what the Court termed the "Notional Income Argument." He explained that the T5 investment income giving rise to his instalment obligations included notional interest on guaranteed investment certificates that had been attributed to him for tax purposes in the 2022 taxation year but had not actually been paid to him. He contended he should not be expected to pay taxes by instalment on notional income that he had not yet received. In support of this argument, he relied on an interpretation bulletin published by the CRA, dated May 29, 1984, and bearing No. IT-369R, which he asserted supported his position that interest is taxable only when paid to a taxpayer. The CRA denied relief for the 2022 year in a first-level review on November 24, 2023, explaining that arrears interest and instalment interest were correctly applied.

The second-level review and decision under review

On October 15, 2024, Mr. McHayle requested a second-level review of both the 2021 and 2022 denial decisions through a telephone call with a Taxpayer Relief Officer. The Relief Officer reviewed the request and provided recommendations to the Delegate. The Delegate issued the Decision Letter on March 13, 2025, denying relief for both years. Regarding 2021, the Delegate reasoned it was the Applicant's responsibility to correctly fill out his return and ensure that all information was accurate, irrespective of whether he filed it manually, used tax preparation software, or employed the services of a third party. The Decision Letter explained that the CRA identified the Applicant's error when it conducted a review approximately eight months after the return was filed, which was within the normal three-year reassessment period. Regarding 2022, the Decision Letter rejected the Notional Income Argument, reiterating that taxpayers are required to make tax instalment payments if their net tax owing is more than $3,000 in the current year and was more than $3,000 in either of the two previous tax years, and noting there was no record of the Applicant calling the CRA to inquire about the instalment reminders.

Procedural issues addressed by the Court

The Court addressed several preliminary procedural matters. First, it corrected the style of cause to name the Respondent simply as the "Attorney General of Canada." Second, despite Rule 302 generally limiting judicial review applications to a single order, the Court permitted both the 2021 and 2022 decisions to be addressed in one application, as they were made simultaneously by the same Delegate, were closely connected in nature, and were similar in terms of the facts, legal issues raised, and bases for the decisions. Third, the Respondent challenged the admissibility of the Applicant's Supplemental Affidavit, sworn on August 18, 2025, which included a copy of a prior Federal Court decision in the Applicant's favour (McHayle v Canada (Attorney General), 2024 FC 302) and copies of email correspondence exchanged between the Applicant and the Respondent's counsel in the course of the proceeding. The Court ruled the Supplemental Affidavit inadmissible because it was not served upon the Respondent within 30 days of issuance of the Notice of Application on April 1, 2025, and the Applicant had not sought leave of the Court under Rule 312 to file it. Additionally, the evidence in the Supplemental Affidavit was not before the Delegate when the Decision was made. However, the Court treated the prior McHayle decision as properly before it since it is an authority of the Court and need not be introduced into evidence.

The legitimate expectations argument

Mr. McHayle raised a procedural fairness argument based on assurances he claimed to have received from the Relief Officer during their telephone conversations. He deposed that he had multiple conversations with the Relief Officer, who indicated that she understood the issues he raised and advised him that she would be recommending that taxpayer relief be granted for both 2021 and 2022, subject to team lead approval. The Court noted that the Respondent had not adduced any evidence contradicting the Applicant's testimony on this point and found the situation "concerning," as it suggested the Relief Officer told the Applicant one thing and then did the opposite. However, applying the doctrine of legitimate expectations as articulated in Jennings-Clyde, Inc (Vivatas, Inc) v Canada (Attorney General), 2024 FC 1141, the Court concluded that this doctrine provides for procedural rights, not substantive rights. Even where a person has a legitimate expectation that a particular outcome will be reached, that expectation is not enforceable. The Court further noted, referencing Baker v Canada (Minister of Citizenship and Immigration), 1999 CanLII 699 (SCC), that fairness may require more extensive procedural rights where a legitimate expectation exists, but the Applicant had not asserted that he was deprived of procedural fairness as a result of the absence of any particular additional steps following his receipt of the assurances. As such, this argument did not support a finding of reviewable error.

Reasonableness of the decision

The Court assessed the reasonableness of the Decision under the Vavilov framework, examining whether it was justified, transparent, and intelligible. For the 2021 year, the Court found the Delegate's reasoning intelligible and supported by the record: the Applicant made the error when he filed his tax return, the CRA identified that error when it conducted the more robust review that resulted in its reassessment, and interest was applied to the additional taxes owing that had not been paid on time. The Court accepted that subsection 220(3.1) can apply to post-assessment interest and that interest or penalties attributable to actions of the CRA can be grounds for relief, but found the Decision withstood reasonableness review on the particular facts. For the 2022 year, the Court found that the Relief Officer's notes demonstrated awareness of and engagement with the Notional Income Argument, referencing the Applicant's explanation about T5 income from investments from which he had not yet received the money and capturing his position that he should not have had to pay instalment interest on amounts he had not received. As to the Applicant's reliance on the interpretation bulletin, the Court agreed with the Respondent that the issue before the Relief Officer and the Delegate in addressing the interest relief request under subsection 220(3.1) was not whether the tax on the relevant investment income was properly assessed. The correctness of an assessment is a matter that can be appealed to the Tax Court, while the Federal Court reviews the exercise of discretionary authority, and these are two different statutory roles that are qualitatively and practically distinct.

Ruling and outcome

The Federal Court dismissed the application for judicial review, finding that Mr. McHayle had not demonstrated that the Decision was unreasonable or was made in a procedurally unfair manner. Justice Southcott acknowledged the Applicant as an organized and capable advocate on his own behalf but concluded that no reviewable error had been established. The Respondent, the Attorney General of Canada, did not claim costs against the Applicant, and accordingly no costs were awarded. No specific monetary amount was ordered in favour of either party, as the application was simply dismissed with no award of costs.