Executive Summary: Key Legal and Evidentiary Issues

• Faraaz Khan sought judicial review of the CRA's denial of relief from taxes and penalties arising from TFSA overcontributions of approximately $142,000 in 2022 and $162,000 in 2023.

• Under subsection 207.06(1) of the Income Tax Act, two preconditions must be met for tax relief: the overcontribution must stem from a "reasonable error," and it must be corrected "without delay."

• Khan admitted no correction was ever made to his overcontributions, arguing it was impossible because investment losses had depleted his TFSA accounts.

• Several exhibits attached to the Applicant's affidavit were excluded from consideration as they were not before the original decision maker.

• The CRA determined Khan did not make a reasonable error, citing his responsibility to maintain records, review his statements, and request information if he needed it.

• Applying the Vavilov reasonableness standard, the Court found the CRA's decision was reasonable and dismissed the application for judicial review.

Background and facts of the case

Faraaz Khan, a self-represented applicant, opened multiple Tax-Free Savings Accounts (TFSAs) in 2021. On May 30, 2022, the Canada Revenue Agency (CRA) sent him a notice advising that he had overcontributed to his TFSAs in 2021 and that he could correct the overcontribution by withdrawing the overcontributed amount immediately. Khan never received this notice because he had not updated his mailing address with the CRA. Unaware of the problem, he continued to overcontribute in 2022 and 2023 by approximately $142,000 and $162,000, respectively. These overcontributions resulted in additional taxes and penalties of approximately $10,000 for the 2022 tax year and approximately $25,000 for the 2023 tax year.

Khan's requests for discretionary relief

In a letter dated September 20, 2023, Khan first requested discretionary relief from the tax penalties imposed for his TFSA overcontributions. The CRA declined this request on September 3, 2024. Khan then made a second request for relief, advancing several justifications including his late awareness of the overcontributions, his lack of knowledge of the consequences of his overcontributions, financial hardship, and his inability to remove excess funds from his TFSAs because investment losses had depleted the accounts. He also expressed remorse and highlighted his good faith efforts to comply with CRA requirements. On June 13, 2025, the CRA again declined to provide relief, stating that Khan did not make a reasonable error because it was his responsibility to maintain records, review his statements, and request information if he needed it. The decision also noted that no correction was made to Khan's overcontributions.

The statutory framework under the Income Tax Act

The case turned on subsection 207.06(1) of the Income Tax Act (ITA), which allows the Minister to waive or cancel all or part of the tax liability resulting from a person's overcontribution to their TFSA. This provision imposes two preconditions: first, the individual must establish that the overcontribution was made based on a "reasonable error"; and second, the individual must correct the overcontribution "without delay." The Court noted that the first precondition allows for a scope of interpretation by a decision maker, as a variety of circumstances and explanations may be advanced to establish a reasonable basis for an error. The second precondition requires that a correction for the overcontribution is made, and only allows a scope of interpretation in determining whether the correction was made "without delay."

Khan's challenge and the Court's analysis

Khan challenged the CRA decision on the basis that it was unreasonable for failing to address his primary basis for requesting relief — specifically, that it was impossible for him to correct the overcontributions by withdrawing funds that were no longer in his accounts. The Court applied the reasonableness standard of review as described by the Supreme Court of Canada in Vavilov, affirmed in Mason v Canada (Citizenship and Immigration), 2023 SCC 21. As a preliminary matter, Justice Battista granted the Respondent's request to exclude Exhibits B, C, D, F, G, I, J and K as well as two documents in Exhibit A attached to the Applicant's affidavit, as they were not before the decision maker and did not assist in determining the reasonableness of the decision. On the substantive issue, the Court found that Khan was asking the CRA to do something that it did not have the legislative authority to do — namely, to relieve him from the requirement of making a correction to the overcontribution. The legislation does not allow the CRA to make an exception to the requirement that a correction to an overcontribution be made before exercising their discretion to provide tax relief.

The ruling and outcome

The Court acknowledged that the reasons do not explicitly address the irrelevance of an "impossibility" of correcting an overcontribution in relation to the test for tax relief. However, the decision does describe the general requirement that a correction to an overcontribution must be made prior to the granting of tax relief, and it acknowledges Khan's argument that it was impossible for him to correct the overcontribution. Citing the principle from Vavilov that decision makers do not need to respond to every argument or line of possible analysis — particularly when a submission is not connected to a statutory test — the Court found it was possible to discern the decision's reasoning. Ultimately, all of Khan's explanations were not connected to the statutory requirements, and his inability to meet the correction requirement was fatal to his request. The Federal Court dismissed Khan's application for judicial review, finding the CRA's decision denying his request for relief was reasonable. The successful party was the Attorney General of Canada (the Respondent), represented by Alicia Tam. Khan did not make a correction to his overcontribution, and therefore tax relief was unavailable to him. No order regarding costs was made, and no exact monetary award was determined in the judgment as the matter concerned the dismissal of the application rather than a damages award.