Executive Summary: Key Legal and Evidentiary Issues

• John Mokrycke sought remission of $155,223.56 in taxes, penalties, and interest for the 2005 and 2006 taxation years under subsection 23(2) of the Financial Administration Act, claiming personal and professional circumstances beyond his control prevented him from responding to the CRA's audit and challenging subsequent reassessments.

• The Director General of the CRA's Legislative Policy Directorate found insufficient evidence of extenuating factors that would have prevented the Applicant from addressing the reassessments during the objection and appeal stages, despite acknowledging his personal difficulties.

• Although the Court agreed that the Director General failed to consider the combined effect of the Applicant's challenges during the audit stage, this shortcoming was deemed inconsequential because the Applicant had ample opportunity to challenge the reassessments at later stages.

• Reliance on tax professionals who failed to act was rejected as a basis for remission, consistent with jurisprudence holding that taxpayers remain responsible for monitoring their own tax affairs absent truly exceptional circumstances.

• Allegations of CRA bias and bad faith in the audit selection process were unsupported by documentation, and the Applicant could have raised these issues through the normal objection and appeal channels.

• Procedural unfairness claims based on the CRA's nearly four-year delay in reconsidering the remission request failed because the Applicant did not demonstrate any resulting prejudice to his ability to present his case.

Background and facts of the case
John Mokrycke is an architect who, during the relevant period, was the principal and sole proprietor of John Mokrycke Architect. He also generated income by leasing property through another company, CAMUL Building Corporation, of which he was the sole owner. In late 2008, the Canada Revenue Agency conducted an audit of Mokrycke's personal income tax returns for the 2005 and 2006 taxation years. After examining his financial records, the CRA auditor identified several unsubstantiated business expenses as well as unreported income. On February 10, 2009, the CRA sent a proposal letter to Mokrycke identifying the issues found during the audit. He never replied to this letter. Consequently, on May 28, 2009, the CRA issued a Notice of Reassessment for each taxation year. For the two taxation years combined, the CRA determined that Mokrycke owed $155,223.56, including tax arrears, interest, and penalties.

The objection and appeal process
Mokrycke's accountant at the time (first accountant) filed Notices of Objection on August 4, 2009. Shortly thereafter, however, the first accountant notified Mokrycke that he was unable to continue assisting him. In September 2009, Mokrycke retained another accountant (second accountant) to contest the reassessments. In January 2010, the second accountant submitted additional representations to the CRA in support of the objections. By letter dated June 28, 2010, the CRA requested that Mokrycke provide information and documentation to support his objections by July 30, 2010, failing which the reassessments would be confirmed. Neither Mokrycke nor his second accountant responded. On August 30, 2010, the CRA issued a Notice of Confirmation, confirming the 2005 and 2006 reassessments. Mokrycke was advised of his right to appeal to the Tax Court of Canada and was provided with information on how to do so. He did not file an appeal within the 90-day deadline. In February 2011, Mokrycke inquired with the CRA about the Notices of Objection. The CRA explained that the objection file was closed and the reassessments had been confirmed, and advised him that he could apply for an extension of time to appeal to the Tax Court. He did not seek an extension of time within the applicable period. In late 2012, Mokrycke re-engaged his first accountant, who in November 2013 resubmitted Notices of Objection for the 2005 and 2006 reassessments. The CRA advised both Mokrycke and the first accountant that the objections were invalid because the reassessments had been confirmed. In September 2014, the first accountant filed an application for an extension of time to appeal the Notice of Confirmation to the Tax Court. The Tax Court dismissed the application on June 22, 2015, as it was filed out-of-time.

The remission request and first judicial review
In December 2015, Mokrycke's first accountant made a request under the taxpayer relief provisions of the Income Tax Act, alleging errors in the audit and reassessments for both taxation years. The CRA denied this request. Mokrycke subsequently retained counsel. In February 2016, his lawyer requested that the CRA reconsider its decision to deny taxpayer relief. The CRA denied this request in April 2016 but suggested that the matter could be considered by way of a remission order. In January 2017, Mokrycke's lawyer requested remission on his behalf under subsection 23(2) of the Financial Administration Act, seeking relief of the taxes, interest, and penalties owing. He asserted that due to personal and professional challenges, Mokrycke's ability to attend to his tax affairs was impaired from the time the audit began, and the reassessments issued, until after the time within which he could file an appeal with the Tax Court. In April 2017, Mokrycke paid the amounts owing for the 2005 and 2006 taxation years in full. In May 2019, the CRA determined that remission could not be recommended. Mokrycke sought judicial review. By decision dated November 3, 2020, Justice Norris of the Federal Court allowed the application, finding that the CRA's decision failed to "engage meaningfully with the main basis of the applicant's request for remission." The matter was remitted to the CRA for reconsideration.

The relevant legal and policy framework
Subsection 23(2) of the Financial Administration Act allows the Governor in Council, on the recommendation of the appropriate Minister, to remit any tax or penalty, including any interest paid or payable thereon, where the Governor in Council considers that the collection of the tax or the enforcement of the penalty is unreasonable or unjust or that it is otherwise in the public interest to remit the tax or penalty. A remission order is recognized as an extraordinary measure, and the decision is a highly discretionary determination that considers various factors, attracting considerable deference on judicial review. The CRA's Employee Remission Manual (Remission Guide) identifies four non-exhaustive categories generally considered in assessing remission requests: (i) extreme hardship; (ii) financial setback with an extenuating factor; (iii) mistake made by the CRA; and (iv) unintended results of the legislation. The Guide provides that an extenuating factor is usually a circumstance beyond the person's control which impacts their ability to meet their tax, filing, or payment obligations. It also specifies that the presence of an error alone will not generally support remission, and that one relevant factor is whether the person could not reasonably have been expected to file a waiver or Notice of Objection or provide new information within the required time limits to resolve the problem by the usual means.

The second review and the Director General's decision
In December 2020, Mokrycke was advised that the CRA would be conducting a second review of his remission request. He was provided with the most recent version of the Remission Guide and invited to submit additional information. In March and July 2021, Mokrycke provided additional information and documentation, and participated in a telephone conversation with a CRA policy analyst in July 2021, during which he addressed the personal and professional challenges he had been facing, as well as the income and expenses at issue in the reassessments. A CRA policy analyst prepared a comprehensive report dated June 13, 2024 concluding that remission was not recommended. This report was approved by the Manager of the CRA's Remissions Section of the Legislative Policy Directorate. The Director General of the CRA's Legislative Policy Directorate agreed that remission could not be supported. On the issue of financial setback with an extenuating factor, the Director General determined that the payment of the tax debt constituted a financial setback for Mokrycke. However, she concluded that there were no extenuating factors justifying a remission order. With respect to the audit stage (October 2008 to May 2009), the Director General acknowledged that Mokrycke was facing numerous significant personal and professional issues and recognized "the challenges of dealing with these competing urgent complex personal and professional matters," but nonetheless found "insufficient documentation and information" supporting that he was unable to address the audit. With respect to the objection stage, the Director General concluded that Mokrycke still "had sufficient opportunity to gather, prepare and provide supporting documentation for [his] objection," noting that his personal and professional challenges were dealt with by April 2010, leaving him over four months to attend to the objections. During the second review, Mokrycke explained that he simply forwarded the CRA's correspondence to his accountant, "trusting he would handle it." The Director General found that taxpayers are expected to monitor their tax affairs and that engaging a tax professional who fails to deliver does not support remission unless extenuating circumstances rendered the taxpayer incapable of managing their tax affairs themselves. At the appeal stage (August 2010 to November 2011), the Director General found that Mokrycke had not "identified any extenuating circumstances that prevented [him] from appealing to the [Tax Court] or requesting a time extension before all deadlines expired in November 2011." On the question of CRA error, the Director General determined that Mokrycke's reassessments may have been reduced had he provided the relevant documentation during the audit or objection processes, but concluded that remission is not "a means to revisit an audit or extend the time to file an objection or appeal," absent extenuating circumstances. Mokrycke also implied that the CRA was biased in the audit selection process, stating that a commercial tenant of his company was a CRA employee who "had instigated the audit as a 'vindictive action' against him for his persistent requests to pay outstanding rent," but the CRA policy analyst noted that he did not provide any documentation to support this allegation.

The Court's analysis on reasonableness and procedural fairness
In this second judicial review, Justice Turley of the Federal Court agreed with Mokrycke that the Director General failed to consider the combined effect of his challenges during the audit stage. In Mokrycke's remission request, his lawyer had referred to the Applicant's circumstances as a "perfect storm," given the convergence of different challenges — a family law dispute, the eviction of a tenant who was causing damage to his property, and being the architect on a renovation project where the building was on the verge of collapse. Rather than considering the totality of these personal and professional challenges, each was assessed by the CRA in isolation. However, the Court held that this failure was not a fatal flaw rendering the decision unreasonable, because the Director General reasonably concluded that the Applicant did not establish that any extenuating factors precluded him from disputing the reassessments during the objection and appeal stages, which was the decisive point. The Court found the Director General's reasoning in this regard was wholly reasonable. On procedural fairness, Mokrycke argued that the CRA's nearly four-year delay in reconsidering his remission request following the Court's first decision rendered the process unfair. The Court rejected this, noting that delay, in and of itself, will rarely constitute a ground of review, and that an applicant must establish that the delay prejudiced their ability to have a fair hearing. There was no evidence that the passage of time impaired Mokrycke's ability to present his case. The Court further noted that Mokrycke did not raise any concerns about delay before the decision-maker at the first opportunity. The Court also rejected Mokrycke's argument regarding legitimate expectations, holding that the doctrine of legitimate expectations does not create substantive legal rights, only procedural ones.

Ruling and outcome
The Federal Court dismissed Mokrycke's application for judicial review, finding no reviewable errors in the Director General's decision refusing to recommend remission. Justice Turley emphasized that the discretionary decision of whether to recommend remission is an exceptional remedy owed significant deference by the reviewing court. The Attorney General of Canada prevailed as the successful party. No costs were awarded, as the parties had agreed post-hearing that neither party would seek costs. No specific monetary amount was awarded or ordered in favor of either party; the dismissal of the application means Mokrycke's request for remission of the $155,223.56 tax debt (which he had already paid in full in April 2017) remained denied.