Background
Brenda Sherring, a 71-year-old English-language instructor, filed several personal income tax returns late. The Canada Revenue Agency assessed arrears interest and late-filing penalties for multiple tax years.
In 2022, Sherring sought discretionary relief under subsection 220(3.1) of the Income Tax Act, relying on financial hardship, medical problems, and COVID-19. After the CRA denied her request, she sought a second review and provided written submissions and medical documentation concerning a leg fracture in 2019. The CRA again refused relief, finding insufficient evidence that circumstances beyond her control had prevented compliance with her tax obligations.
Sherring applied for judicial review of the second-review decision, arguing that the CRA misunderstood her financial circumstances and failed to consider her age, physical limitations, and ability to continue working.
The Court’s Holding
The Federal Court dismissed the application. Applying the reasonableness standard, Justice Brouwer held that the CRA had engaged with Sherring’s submissions, reviewed the evidence, and reached a clearly articulated and rational conclusion within the scope of its statutory discretion.
The CRA reasonably found that the 2019 leg fracture did not explain non-compliance during the eight preceding tax years and that Sherring had provided no medical documentation supporting her asserted mental-health difficulties. It also reasonably concluded that the financial evidence—including house renovations, a home sale, repayment of a line of credit, a vehicle purchase, and more than $70,000 in RRSP contributions between 2019 and 2022—did not establish the claimed financial hardship or show that circumstances beyond her control prevented timely filing.
The Court noted that Sherring could still present properly supported evidence of her current circumstances to the CRA when seeking a workable payment plan. It declined to award costs, ordered each party to bear its own costs, and amended the style of cause to identify the Attorney General of Canada as the proper respondent.
Key Takeaways
- A CRA decision denying discretionary relief from tax penalties and interest is reviewed for reasonableness.
- A taxpayer seeking relief should provide evidence connecting the asserted hardship, illness, or extraordinary circumstance to the failure to meet particular tax obligations.
- Judicial review examines the administrative record and the reasonableness of the CRA’s decision; it does not permit the court to reweigh the evidence or decide the relief request afresh.
Why It Matters
The decision illustrates the evidentiary burden facing taxpayers who seek discretionary relief based on medical or financial hardship. General evidence of difficult circumstances may be insufficient without documentation and a demonstrated causal connection to the late filing or payment.
It also distinguishes relief from accrued penalties and interest from collection arrangements: even when the CRA reasonably refuses taxpayer relief, a taxpayer may still seek a payment plan based on properly documented present circumstances.