Federal Court upholds denial of tax relief request but finds good case for payment plan

While accepting that a taxpayer might have a good case for a payment plan, the Federal Court affirmed the Canadian Revenue Agency’s (CRA) denial of her request for relief from penalties and interest owed for taxes filed late. 

In Sherring v. Canada (Attorney General), 2026 FC 1064, the applicant was a 71-year-old English language instructor residing in Saskatchewan. She did not file her 2011–16 personal tax returns on time. 

In 2018, the CRA issued tax assessment notices with arrears interest and late-filing penalties for 2011–16. After the applicant filed tax returns for the 2013–16 tax years, the CRA issued amended assessment notices. 

The applicant filed her 2017 and 2019 tax returns late. Thus, the CRA issued notices of assessment with arrears interest and late-filing penalties for 2017 and 2019. 

Tax relief request denied

In April 2022, under s 220(3.1) of the Income Tax Act, 1985, the applicant requested relief from penalties and interest for the 2006–21 tax years based on financial hardship, medical problems, and COVID-19. 

In its first review, the CRA denied the tax relief request. The decision-maker observed that: 

• The CRA could only consider relief accrued in the decade before the request, which would exclude the 2006–10 tax years 
• There were no penalties or interest for the 2007–09 tax years 
• Relief was unwarranted for the 2011–21 tax years, as nothing prevented the applicant from complying with her filing and remitting obligations 

Based on financial hardship, illness, emotional and mental distress, and a leg fracture in 2019, the applicant sought a review in connection with the 2011–21 tax years. 

On Oct. 25, 2023, the CRA rejected the tax relief request following a second review. The decision-maker noted that: 

• The applicant lacked supporting documentation, given her admission that she had not consulted a doctor regarding her mental health issues 
• Her leg fracture – which happened on June 1, 2019, and healed by Oct. 2, 2019 – did not prevent her from meeting her tax obligations for the eight prior tax years 
• She was not facing financial hardship because she had funded renovations for two houses, sold a house, purchased a car, paid off a line of credit, and added more than $70,000 to her Registered Retirement Savings Plan (RRSP) accounts from 2019–22 
• No circumstances beyond her control prevented her from complying with her obligations 

Judicial review application at Federal Court

The applicant applied for judicial review of the CRA’s second review decision. She argued that the CRA misunderstood her financial situation and failed to consider her age, physical limitations, and ability to keep working. 

Canada Revenue Agency decision upheld

The Federal Court dismissed the judicial review application and held the parties responsible for their own costs. The court saw no evidence that the CRA unreasonably denied relief from penalties and interest. 

The court ruled that the CRA decision-maker addressed the submissions, examined the evidence, and clearly articulated a rational conclusion that reflected the legally available scope of discretion. 

Payment plan may be workable

The Federal Court acknowledged the applicant’s financial, physical, and emotional troubles over the years. The court accepted that she might be able to negotiate a workable payment plan with the CRA to reflect her current financial circumstances. 

The court rejected the respondent’s request for costs due to the applicant’s circumstances. 

Federal Court’s previous tax cases

Here are some other recent tax-related decisions by the Federal Court of Canada. 

The Federal Court issued an Aug. 13 decision declining to extend the time for a man to apply for a judicial review of a CRA decision refusing his request to cancel his 2020–21 tax-free savings account taxes. 

Upon the parties’ consent, the Federal Court made a July 3 ruling setting aside a decision by a delegate of the minister of national revenue that refused LG Electronics Canada, Inc.’s request for interest relief under s. 220(3.1) of the Income Tax Act. 

The Federal Court issued a June 15 decision granting 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.

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