Federal Court of Appeal grants appeal of remittal of taxpayer relief request
The Federal Court of Appeal has allowed an appeal and set aside a Federal Court judgment favouring a taxpayer who requested relief from penalties and nine years of interest under s. 230(3.1) of the Income Tax Act, 1985.
In Canada (Attorney General) v. Maloney, 2025 FCA 165, the minister of national revenue’s delegate in the Canada Revenue Agency granted a significant portion of the taxpayer’s request.
The taxpayer applied for a judicial review of the delegate’s decision.
In September 2024, the Federal Court issued a judgment allowing the taxpayer’s judicial review application and remitting the matter to a different taxpayer relief officer to reconsider the taxpayer relief request.
The Federal Court found the delegate’s decision procedurally unfair and substantively unreasonable.
Canada’s attorney general, as the appellant in this case, challenged the Federal Court’s judgment.
Delegate’s ruling upheld
The Federal Court of Appeal granted the appeal and dismissed the taxpayer’s judicial review application.
First, the appeal court addressed the procedural fairness issue. The appeal court ruled that the Federal Court erroneously agreed with the taxpayer’s argument that he could not access some documents.
The appeal court noted that the taxpayer requested numerous documents irrelevant to the key issues of financial hardship and undue delay.
The appeal court said some documents sought pertained to the basis for prior tax reassessments for the 2000–03 taxation years, which were irrelevant to determining fairness under s. 220(3.1) of the Income Tax Act. The appeal court added that other documents concerned the tax treatment of specific athletes and the “ultra-rich.”
The appeal court held that the taxpayer knew about the case he had to meet and had a sufficient opportunity to respond to that case. The appeal court concluded that the minister’s delegate complied with the procedural fairness standards in assessing the key issues.
Second, the court tackled the substantive reasonableness issue. The appeal court determined that the Federal Court inappropriately conducted a disguised correctness review, rather than a reasonableness review, and imposed its own views of what it deemed an appropriate delay.
The appeal court noted that the Federal Court should have engaged in a reasonableness review by:
- reading the delegate’s reasons in light of the evidentiary record available
- determining what would be fair while considering the delegate’s wide and unrestrained discretion under s. 220(3.1)
- assessing whether the delegate’s decision fell beyond those loose constraints
The appeal court decided that the Federal Court failed to follow this methodology.
Lastly, the appeal court conducted a new review without deferring to the Federal Court’s findings.
The appeal court deemed the delegate’s decision reasonable. The appeal court noted that the minister could not guarantee how long completing a tax shelter objection would take, given its complexity.
The appeal court said the taxpayer:
- received warnings about his debt over the years
- accepted some relief for financial hardship during delays in processing his taxpayer relief request
- was responsible for ensuring his tax returns were timely and accurate
- could have paid his tax debt
- chose not to do so and instead allowed the interest to accumulate
The appeal court stressed that those who knowingly refrained from paying tax debts pending a decision they were awaiting generally could not avoid paying interest or penalties or challenge the interest and penalties imposed for being unfair.
Regarding the taxpayer’s argument that the delegate failed to consider certain documents, the appeal court concluded that these documents would not have impacted the outcome, even assuming that this argument had merit.
