Executive Summary: Key Legal and Evidentiary Issues

• Judicial review assessed CRA’s refusal to grant taxpayer relief under subsection 220(3.1) of the Income Tax Act

• Central issue was whether the decision was unreasonable under the Vavilov reasonableness framework

• CRA’s reasoning relied partly on a fact with no evidentiary basis in the record

• Applicant’s withdrawal of financial hardship claim did not justify ignoring lack of evidence for CRA’s second reason

• The court held the decision lacked a factual foundation, rendering it unreasonable

• Remedy granted was remittal to a different CRA decision maker with no award of costs

Facts and outcome of the case

Background of the dispute

The applicant, a U.S. citizen residing in British Columbia, worked remotely for an American company while paying Canadian income taxes. Because her net taxes owed exceeded $3,000 in prior years, she was legally required to make quarterly installment payments in 2021 and 2022. She did not make these payments, citing financial difficulty, and the Canada Revenue Agency (CRA) assessed installment and arrears interest against her. Although she claimed significant foreign tax credits, CRA denied her request for taxpayer relief under subsection 220(3.1) of the Income Tax Act. After an initial denial, she sought a second review, which was also refused. She then brought the matter before the Federal Court through a judicial review application.

The court’s review of CRA’s decision

The court applied the reasonableness standard from Vavilov, examining whether CRA’s decision was transparent, intelligible, and justified based on the record. CRA had relied on two reasons: that the applicant had withdrawn financial hardship as a basis for relief, and that she could have asked her employer to reduce tax withholdings. The second reason was not supported by any evidence in the record, and the respondent could not identify any factual basis for it. Because the agency’s overall conclusion rested in part on this unfounded reason, the decision was found to be unreasonable.

Outcome of the case

The court granted the application for judicial review and set aside CRA’s second review decision. The matter was sent back to a new reviewer within CRA for redetermination, with instructions that the applicant be given the chance to clarify and confirm her grounds for relief. The respondent was properly identified as the Attorney General of Canada, and the style of cause was amended accordingly. No costs or damages were awarded.

Implications of the decision

This case underscores that administrative decisions must be supported by evidence in the record. Even if one ground appears valid, reliance on an unsupported factual finding can render the entire decision unreasonable. The ruling reinforces the principle that CRA must exercise its taxpayer relief discretion fairly, based on accurate facts and proper consideration of each applicant’s circumstances.