Executive Summary: Key Legal and Evidentiary Issues

• Judicial review centered on the CRA’s denial of a Voluntary Disclosures Program (VDP) application due to an incomplete submission.

• The pivotal missing document was an amended T2 corporate income tax return for the 2007 taxation year.

• Applicant argued that 2007 was outside the 10-year relief window and should not affect the disclosure's completeness.

• CRA maintained that full disclosure of all relevant tax years, including pre-2008, was essential to validate the VDP application.

• Court held the CRA’s interpretation and enforcement of the VDP requirements were reasonable and procedurally fair.

• Claims of procedural unfairness, contract formation, and promissory estoppel were all rejected due to lack of legal and factual basis.

Facts of the case

Créations Guimel Inc. applied for relief under the Canada Revenue Agency’s (CRA) Voluntary Disclosures Program (VDP) in June 2019, covering the tax years 2008 to 2017. The disclosure involved a 2007 transaction where the company sold cumulative eligible capital (i.e., know-how) to European clients, invested the proceeds in Luxembourg, and later used the funds to purchase a rental property in France. While the relief sought focused on post-2007 years, the 2007 transaction formed the factual basis for the tax implications in subsequent years.

The CRA repeatedly requested an amended T2 corporate income tax return for 2007 to complete its review. While the company submitted various documents, it failed to produce the requested amended 2007 return despite extensions and follow-ups. CRA ultimately deemed the VDP application incomplete and denied it in October 2023. The company challenged this decision through a judicial review, alleging the decision was unreasonable and procedurally unfair.

Judicial reasoning and analysis

The Federal Court applied the reasonableness standard of review to assess the CRA’s discretionary decision under subsection 220(3.1) of the Income Tax Act. The Court emphasized that the VDP program is discretionary and does not confer a right to relief. According to the CRA’s own Information Circular IC00-1R6, a VDP application must include full disclosure for all relevant years, even if some fall outside the 10-year relief window.

The applicant argued that the 2007 tax year was outside the relevant scope and that any missing documentation was a minor omission. However, the Court disagreed, noting that the 2007 transaction directly triggered the tax consequences in the years for which relief was sought. As such, the T2 return for 2007 was deemed materially relevant and its absence was not a minor error.

The Court also dismissed claims of procedural unfairness. It found that the applicant had been given multiple opportunities and extensions to provide the missing document and that the CRA was under no obligation to give a final notice or another extension before rendering its decision. The Court found that a voicemail left by the CRA officer was a sufficient attempt to follow up, especially since previous communications had been successfully conducted via phone.

Further, arguments invoking contract law (offer and acceptance based on the Information Circular) and promissory estoppel were found to be without merit. The Court emphasized that CRA guidelines are administrative tools, not binding contracts, and that no specific promise had been made to the applicant regarding acceptance into the VDP.

Outcome

The Federal Court dismissed the judicial review application and upheld the CRA’s decision to deny the VDP application. It concluded that the decision was reasonable, there was no breach of procedural fairness, and that the applicant had not met the criteria for relief under the VDP. Costs were awarded against the applicant, calculated at the mid-point of Column 3 of Tariff B.