Executive Summary: Key Legal and Evidentiary Issues

• Melflor Investments Ltd. sought judicial review of the Minister of National Revenue's denial of relief under the Voluntary Disclosure Program (VDP) for tax penalties and interest on unfiled returns from 2008 to 2018.

• The central dispute was whether the Applicant's VDP disclosure was "voluntary," given that CRA enforcement actions (letters and a phone call) preceded the formal submission of the disclosure in February 2020.

• Evidence submitted by the Applicant, including emails and accountant invoices, was found insufficient to prove that the VDP disclosure process was underway before the CRA's enforcement actions began in May 2019.

• New extrinsic documents (detailed billable hours and correspondence) presented during judicial review were deemed inadmissible because they were not before the original decision maker.

• Procedural fairness was not breached despite the First Review's omission of exact enforcement letter dates, as the Applicant bore the responsibility to put its best case forward and had sufficient notice of the voluntariness challenge.

• The Delegate's reliance on the CRA's Information Circular did not constitute a fettering of discretion, as the analysis also considered factors outside the Circular, including the Applicant's conduct and sequence of events.

The background of the dispute

Melflor Investments Ltd. is a family-owned investment holding company. Its founders, Melvyn Naimer and Florence Naimer, passed away in 2002 and 2010, respectively. In 2010, the founders' three children inherited the corporation, with Mark Naimer serving as the principal contact. The siblings decided to maintain the same accountant, Derek De Gannes, who had prepared the company's tax returns from 2002 to 2005. However, through a series of communications culminating on March 25, 2019, Mark Naimer stated that he discovered that Mr. De Gannes had unilaterally stopped completing the Applicant's tax returns since 2009. The siblings subsequently filed a professional misconduct complaint against Mr. De Gannes with the Chartered Professional Accountants of Ontario ("CPAO"). On February 11, 2022, the Discipline Committee of the CPAO found Mr. De Gannes breached his professional obligations from 2012 to 2019 due to his actions in relation to the Applicant.

Engaging new accountants and the CRA's enforcement actions

On March 26, 2019, Mark Naimer emailed an accounting firm with which he had a previous working relationship, HSM LLP, and stated that he needed to bring the Applicant up to date with filings since 2009. In June and July 2019, HSM LLP issued interim invoices purporting to account for time spent since February 2019 on the forensic accounting necessary to bring the Applicant into compliance with the Income Tax Act (ITA). However, while this work was in progress, the Canada Revenue Agency (CRA) took several enforcement steps. In a letter dated May 28, 2019, the CRA requested that the Applicant file its tax return for the year ending June 30, 2017. In November 2019, a CRA agent phone called HSM LLP, as the Applicant's authorized accountants, regarding an unfiled tax return for 2017. On December 3, 2019, the CRA demanded that the Applicant file its tax return for the year ending on June 30, 2017. The Applicant admits that it was aware of the CRA's November 2019 phone call before submitting its information to the VDP.

The VDP application and the two-stage denial

On February 11, 2020, the CRA received the Applicant's disclosure for the tax period between 2008 and 2018 under the Voluntary Disclosure Program. The VDP was created under subsection 220(3.1) of the ITA to encourage taxpayers to make a disclosure of their own initiative. For a disclosure under the VDP to be valid, it must meet five criteria; the only criterion at issue in this case is "voluntariness." Under the CRA's Information Circular IC00-1R6, a VDP disclosure is not voluntary if an enforcement action regarding the subject matter of the taxpayer's disclosure was taken against the taxpayer or related entities prior to the taxpayer's disclosure. An enforcement action includes requests and demands from the CRA relating to unfiled tax returns. In a letter dated October 7, 2022, a delegate of the Minister denied the Applicant's relief under the VDP (the "First Review"), specifying that the disclosure was not voluntary because the CRA had sent the Applicant two letters, both of which regarded a tax return for one of the years covered in the Applicant's disclosure. After an administrative delay, in a letter received by the CRA on June 6, 2024, the Applicant submitted a request for a second review. In a decision dated September 4, 2024, the Delegate denied the Applicant relief under the VDP because the disclosure was not considered voluntary (the "Second Review"), noting the two enforcement letters dated in May and December 2019 and the November 2019 phone call made to the Applicant's authorized accountant.

The judicial review proceedings and evidentiary issues

Melflor brought an application for judicial review before the Federal Court under section 18.1 of the Federal Courts Act, raising two issues: whether the Delegate's decision is reasonable and rendered in a procedurally fair manner. As a preliminary matter, the Court addressed new evidence the Applicant submitted as an exhibit to the Affidavit of Mark Harendorf — a detailed list of the billable hours that the Applicant's accountant completed between January and December 2019 and email correspondence between Mark Naimer and an accountant at HSM LLP — which had not been before the decision maker. Justice Ahmed found these documents generally inadmissible, noting they did not fall within the recognized exceptions for extrinsic evidence on judicial review, such as providing general background information, revealing the lack of information before a decision maker, or demonstrating a procedural defect. The Applicant had the opportunity to submit this additional evidence in both the First and Second Review of its VDP disclosure but chose not to include these documents. The Court emphasized it could not consider and reweigh this new evidence under the Vavilov framework.

Procedural fairness and fettering of discretion

The Applicant submitted that it could not properly present its arguments or documents in the Second Review because the First Review did not specify the dates on which the enforcement letters were sent and the Naimer siblings do not specifically recall receiving these letters. The Court rejected this argument, finding that the First Review's omission of the exact dates of the enforcement letters did not deprive the Applicant of a full opportunity to present its case. The Court agreed with the Respondents' submissions that it is the responsibility of the Applicant to put its best foot forward while applying for discretionary tax relief. The Court further noted that taxpayers who make VDP disclosures have minimal procedural rights because of the expansive discretion under subsection 220(3.1) of the ITA. The First Review explicitly mentioned the Applicant's contact with a CRA collections agent prior to its filing of the VDP application and stated that the Applicant was sent a reminder letter and a demand letter to file its income tax return for the tax year of 2017. The Court also observed that the CRA's enforcement letters are both directed to the same address the Applicant provides as its mailing address in its VDP application, emphasizing that it is not the CRA's duty to check the Applicant's mail. On the question of fettering, the Applicant submitted that the Information Circular does not prevent the Delegate from finding the disclosure was voluntary and that the Delegate relied on the Information Circular to ignore its key arguments. The Court disagreed, finding the Delegate did not fetter his discretion. Rather, his analysis showed due regard for the Information Circular's role in creating predictability within VDP decisions while also understanding that his discretion is not bound by the Information Circular. The Delegate relied on the Information Circular for definitions and the framework for his analysis, but he also considered factors outside the Information Circular, such as the Applicant's initial contact with a new accountant.

The voluntariness analysis and distinguishing precedent

The Court examined two key precedents relied upon by the Applicant. In Worsfold, the delegate had assumed that the applicant's disclosure was triggered by an audit of a company in which the applicant was one of three shareholders. The court in that case found the assumption was not reasonable in light of the contradictory evidence showing that the company management had not notified the shareholders and that the audit began only two days before the applicant's representative made a no-name voluntary disclosure to the CRA. The Court found this case distinguishable: whereas the applicant in Worsfold had received legal advice before the enforcement action and effectively communicated his disclosure to the CRA just two days after the audit started against a related company, the Applicant in this case did not communicate their intention to submit a VDP to the CRA until more than eight months after the CRA's first enforcement action. Additionally, the enforcement action in Worsfold was against a related corporation, not the applicant himself, whereas in this case the Applicant and its accounting representative were sent the CRA enforcement action directly. As for Christen, the Court noted that initial contact with the CRA or an accountant does not constitute the date of effective disclosure. In Christen, despite an anonymous phone call discussing a possible VDP before any enforcement action, the Court found it was not a foregone conclusion that the disclosure was voluntary because the intentions of the applicant to submit a VDP can change from their preliminary steps to the time when the VDP is actually submitted. The Delegate had acknowledged the emails from October 2018 to March 2019 showing that one of the Naimer siblings was made aware of the former accountant's non-compliance with the ITA and professional conduct standards, but found that this did not amount to proof that the Applicant's VDP disclosure was underway. The Court agreed, noting these documents merely show the Applicant was aware of its failure to comply with the ITA and took initial steps towards calculating the extent of its missing filings.

The ruling and outcome

Justice Ahmed dismissed the application for judicial review, finding no reviewable error in the Delegate's determination. The Delegate's conclusion accords with the evidence on record and reflects the applicable contextual and legal constraints. The Applicant had a full opportunity to submit its evidence, which the Delegate found to be insufficient to demonstrate that it had undertaken a VDP disclosure before the CRA's enforcement actions. The Delegate reasonably inferred from this sequence of events that the Applicant's disclosure was not voluntary. The Court awarded the Respondents — the Attorney General of Canada and the Minister of National Revenue — a total of $4,320 in costs, comprising $3,780 in costs for the judicial review application and an additional $540 in costs for the preliminary motion that was dismissed in the Order issued February 3, 2026. The decision does not specify the exact amount of tax penalties and interest that would have been subject to relief under the VDP, as the case turned solely on whether the disclosure met the voluntariness criterion.