Tax specialist presumably should know interest accrued on unpaid balance, decision notes
The Federal Court has dismissed the judicial review application of a practising tax lawyer and chartered professional accountant who challenged the Canada Revenue Agency (CRA)’s denial of the relief he requested from arrears interest for the 2000 tax year.
In Rotfleisch v. Canada (Attorney General), 2025 FC 1529, the applicant was a lawyer at a Toronto-based boutique tax law firm and a certified specialist in taxation law in Ontario.
In his tax return for the 2000 tax year, the applicant claimed a $75,000 charitable donation to Ideas Canada Foundation through a complex leveraged donation program. Under the program, a participant donating to Ideas would get a 25-year interest-free loan equal to 80 percent of the amount pledged.
In February 2004, the CRA notified the applicant that it was investigating Ideas. In May 2004, the CRA informed him that it was disallowing $60,000, representing 80 percent of his claimed charitable donation.
In June 2004, the CRA issued a notice of reassessment of the applicant’s 2000 tax return and informed him about the amount he owed. In November 2004, he filed a notice of objection to the reassessment.
Through a December 2004 letter, the CRA acknowledged the applicant’s objection and advised that it would hold it in abeyance pending the Tax Court of Canada’s determination of a test case, Kossow v The Queen, 2012 TCC 325.
The December 2004 letter noted that the applicant could settle his balance while maintaining his objection to avoid the continuing accumulation of interest on his unpaid balance, as he presumably should know as an experienced tax lawyer and accountant.
The appellant taxpayer in the test case challenged a similar CRA decision disallowing 80 percent of a claimed charitable donation to Ideas.
In September 2012, the Tax Court dismissed the appellant taxpayer’s appeal. In December 2013, the Federal Court of Appeal rejected her appeal of the Tax Court decision. In May 2014, the Supreme Court of Canada dismissed her application for leave to appeal.
In November 2014, the CRA sent the applicant in the present case a notice of confirmation of the denial of the $60,000 disallowance.
In December 2014, the applicant requested relief of arrears interest that had accumulated since Jan. 1, 2004, under s. 220(3.1) of the Income Tax Act, 1985.
The appellant alleged that the CRA unduly delayed resolving his December 2004 objection, held it in abeyance for a decade, and failed to inform him about the amount owed within a reasonable time.
In January 2015, the applicant paid $34,191.80, representing the outstanding balance of his arrears interest for the 2000 taxation year, to stop the further accumulation of arrears interest.
In a November 2023 letter, a delegate of the minister of national revenue granted partial relief of arrears interest from Dec. 6, 2013 (when the Federal Court of Appeal dismissed the appeal in the test case) until Nov. 7, 2014 (when the CRA issued the confirmation notice). However, the first delegate denied relief for the remaining periods.
The first delegate determined that the CRA caused no undue delay by holding the objection in abeyance pending the test case’s outcome and advised the applicant of the amount owed within a reasonable time through its June 2004 reassessment notice.
The first delegate added that the applicant knew about the balance owed while the test case was pending, could have paid that balance while the CRA held his objection in abeyance, and chose not to pay, resulting in the accrual of arrears interest.
The applicant asked for a reconsideration of the first delegate’s decision. In July 2024, the minister’s second delegate refused reconsideration. The applicant applied for a judicial review of the second delegate’s decision.
Decision reasonable
The Federal Court dismissed the judicial review application upon finding the decision under review reasonable and procedurally fair.
First, the court found the second delegate’s decision, which denied the applicant’s request for arrears interest relief, reasonable.
The court ruled that the second delegate reasonably:
- explained why she found no undue delay
- noted that she could not control the processes of the Tax Court, an independent court
- considered the factors to assess whether the delay entitled the applicant to arrears interest relief
- saw no circumstances preventing the applicant from paying the amount owed
- determined that the applicant had knowingly allowed a balance to remain, on which arrears accrued, by delaying his payment until 2015
Next, the court concluded that the second delegate reached a fair decision and rejected the applicant’s bias allegation.
The application alleged bias in the second delegate’s comments that the applicant:
- could not expect to gain a financial advantage exceeding the donation amount
- could not expect to profit from a charitable donation
- could control whether to participate in the program and whether to pay the tax owed by the due date
- chose to wait for the test case’s outcome before taking steps to reduce the accumulated interest
The court held that the second delegate accurately stated the applicable law, rather than making a moral judgment.
The court explained that the second delegate’s comments concerned the reason she rejected the applicant’s charitable donation claim and her determination of whether she should grant arrears interest relief.
