Executive Summary: Key Legal and Evidentiary Issues

• The applicant challenged the CRA’s refusal to grant relief from tax penalties and interest under section 281.1 of the Excise Tax Act.

• CRA determined that failure to register and file GST/HST returns was within the applicant’s control, despite remittances made by his employer.

• The Federal Court applied the reasonableness standard under Vavilov to assess CRA’s decision.

• The judge found the CRA properly considered the applicant’s submissions and evidence.

• Employer remittances were deemed irrelevant because they did not satisfy the registrant’s legal obligations under the Act.

• No extraordinary circumstances were proven to justify taxpayer relief.

Facts and outcome of the case

Joseph Demma, a realtor, failed to register for a GST/HST account despite being informed by the CRA on June 23, 2023 that he was required to do so. By July 31, 2023, his registration had not occurred, and the CRA issued assessments for outstanding tax balances for the years 2020 through 2022. These assessments included arrears interest, late filing fees, and penalties for failure to file, as authorized by the Excise Tax Act.

Mr. Demma requested taxpayer relief under section 281.1 of the Act, arguing that the taxes had already been collected and remitted by his employer. This initial request was denied in December 2023 during a First Review, and again in a Second Review decision on May 10, 2024. The CRA acknowledged the employer’s remittance but stated that human error and lack of understanding were not valid grounds for relief.

Mr. Demma brought a judicial review application before the Federal Court, claiming the CRA’s decision was unreasonable. He relied on case law (notably Gordon v. Canada) and argued that since the government had already received the taxes, penalties and interest should not be applied.

Justice Ahmed of the Federal Court dismissed the application. He ruled that the CRA had properly considered Mr. Demma’s evidence and submissions. The Court clarified that penalties and interest are imposed to address taxpayer noncompliance and not to compensate for financial loss. The employer’s remittances did not fulfill Mr. Demma’s obligations under the law, and there were no extraordinary circumstances justifying relief. The decision was found to be reasonable within the meaning established by the Supreme Court in Vavilov.

Although both parties sought costs, none were awarded due to the applicant’s self-represented status. The application was dismissed without costs, and the style of cause was corrected to name the Attorney General of Canada as the proper respondent.