Ruling remands income tax-related matter based on procedural unfairness
In a challenge against a finding of ineligibility for the Canada Recovery Benefit (CRB) based on the income requirement, the Federal Court saw exceptional circumstances constituting incompetent legal representation, giving the court the discretion to set aside the decision.
In Doheney v. Canada (Attorney General), 2025 FC 1532, the applicant was a wellness consultant and yoga instructor who rejoined the workforce as an entrepreneur in 2019. Her business was based in Toronto.
In October 2024, a second Canada emergency benefits validation officer from the Canada Revenue Agency (CRA) found the applicant ineligible for the CRB in 2019 because she did not earn at least $5,000 of employment and/or net self-employment income in 2019, 2020, or the 12 months before her application date.
The second officer accepted that the applicant gave supporting documents such as bank statements, invoices, and explanations for her self-employment income. However, the officer noted that the applicant failed to provide proof regarding her business-related expenses for the 2019 tax year.
The applicant applied for judicial review. She noted that her lawyers, hired based on their claimed expertise in CRB matters, advised her not to comply with the second officer’s request for proof of her 2019 expenditures in her original filing under the Income Tax Act, 1985. She paid them $10,000 for their advice.
The applicant was absent from a conference call during which her lawyers informed the CRA that they would not comply with the lawful request for proof regarding the 2019 expenses and their eligibility for deduction from income.
The applicant acknowledged that her lawyers wrongly advised her not to provide the requested documents to support her 2019 expenses, which she should have done.
Incompetence found
The Federal Court granted the judicial review application, set aside the decision, and remanded the matter to a different decision-maker for a redetermination.
The court directed the applicant to give reviewing officers the information they requested under s. 6 of the Canada Recovery Benefits Act, 2020 (CRB legislation) and proof of expenses incurred in 2019 requested by the first and second officers.
First, the court found the decision reasonable and saw no errors on the part of CRA or any of its reviewing officers.
The court said that the second officer:
- reviewed the applicant’s documents, including the updated T1 adjustment and T2125 forms
- reasonably requested additional documents to prove that the 2019 expenses claimed as business expenses were not eligible deductions, which was a core issue in this case
- applied the statutory criteria
- carefully considered the applicant’s submissions and representations
- concluded that the applicant did not meet the income requirement
The court noted that the applicant, based on her lawyers’ advice, refused to give the requested documents and told the second officer to rely on the updated T1 adjustment and T2125.
The court found that s. 6 of the CRB legislation required the applicant to produce the requested documents. The court added that failing to meet this statutory duty would be a reasonable basis for an officer to find an applicant ineligible for the CRB.
The court concluded that the reviewing officers reached a reasonable and correct decision based on the available record. However, the court found the record insufficient due to the lawyers’ error.
The court decided that the applicant successfully established a breach of procedural fairness or natural justice through her lawyers’ incompetent representation.
The court ruled that the case involved extraordinary circumstances and professional incompetence, which occurred when the lawyers told officers they would not comply with a direct request to produce documents and told the applicant to disobey the production requirement under s. 6 of the CRB legislation.
The court explained that the incorrect legal advice, which the applicant had no reason to doubt, left the officers with no option but to find her ineligible for the CRB for 2019.
The court saw a reasonable probability that the outcome would have differed if not for the inaccurate legal advice. The court noted that the applicant’s 2019 expenses pertained to advertising, her business license, her office, and the use of her home for a business purpose, among others.
