Immigrants sought tax penalty relief for late-filed foreign income verification statements
Canada’s Federal Court has granted judicial review applications filed by immigrants from India who requested relief from tax penalties and arrears interest arising from the delayed filing of their T1135 forms, referred to as foreign income verification statements.
In October 2018, the applicants in Kaur v. Canada (Attorney General), 2026 FC 758, immigrated to Canada. They returned to India in November 2018 and went back to Canada in May 2019. Soon afterward, they filed their income taxes with the Canada Revenue Agency (CRA).
A taxpayer should provide a T1135 form if they owned specified foreign property with a total cost exceeding $100,000 any time in the relevant tax year.
The applicants did not file T1135 forms for the 2018 and 2019 tax years. However, they did timely submit these forms for the 2020 and 2021 tax years. Alongside their other tax filings in April 2022, they voluntarily disclosed the missing T1135s for the 2018 and 2019 tax years.
In June 2022, the CRA issued reassessment notices for 2018 and 2019. The CRA charged the applicants a $2,500 tax penalty for each late filing, plus arrears interest. The applicants requested relief.
After their unsuccessful first- and second-level requests for review, the applicants applied for judicial review. They alleged that they had acted with diligence and in good faith to correct their error, which had only minimally impacted their tax liability.
The applicants explained that they failed to file T1135 forms for the 2018 and 2019 tax years because they misunderstood the reporting requirements and believed these forms only covered foreign income over $100,000, not foreign property worth at least $100,000.
Relief requests remitted
The Federal Court granted the judicial review applications based on the reviewer’s unreasonable assessment of the applicants’ circumstances. The court remitted their requests for relief from the tax penalties and interest to the CRA for a redetermination. The court awarded no costs.
The court ruled that the reviewer failed to cover all relevant factors in the weighing process. The court said the reviewer should have considered the applicants’ substantial compliance with the self-assessment system and their exercise of reasonable care after coming to Canada in 2018.
The court acknowledged that the applicants fulfilled their T1 filing obligations every year.
According to Judge Angus Grant, “the fact that the applicants filed their T1 forms on time for the 2018 tax year, even though they only arrived in Canada at the end of that year, is a sign of care and diligence in reporting, rather than non-compliance.”
While the applicants filed their T1135 form a day late in 2022, the court pointed out that a technical issue on the CRA’s part caused the delay. The court saw errors in the reviewer’s findings that:
- The applicants only filed two of five T1135 forms by the due dates
- It was notable that the applicants had not filed a T1135 before 2018 (when they became Canadian residents only in 2018)
- The applicants’ failure to file their T1135s for 2018 and 2019 was a relevant factor in rejecting their request for relief for failing to file their 2018 and 2019 T1135 forms
“This circular form of logic often leads to unreasonable outcomes because it turns the premise of a request for relief into a reason for denying it,” Grant wrote for the court.
The court concluded that the reviewer’s errors broke the chain of analysis, which weakened the decision’s reasonableness.
