Dockets: T-551-25
T-552-25
Citation: 2026 FC 758
Toronto, Ontario, June 15, 2026
PRESENT: The Honourable Mr. Justice A. Grant
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Docket: T-551-25
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BETWEEN:
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MANJIT KAUR
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Applicant
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and
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ATTORNEY GENERAL OF CANADA
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Respondent
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Docket: T-552-25
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AND BETWEEN:
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MOHAN SINGH
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Applicant
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and
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ATTORNEY GENERAL OF CANADA
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Respondent
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REASONS AND JUDGMENT
I. OVERVIEW
[1] The Applicants seek judicial review of a decision by the Minister of National Revenue denying their second level request for relief from tax penalties and arrears interest.
[2] For the brief reasons that follow, I will grant this application.
II. BACKGROUND
A. Facts
[3] The Applicants in these matters, Mohan Singh and Manjit Kaur, immigrated to Canada in October 2018. Shortly after, in November 2018, they returned to India where they remained until May 2019.
[4] Soon after their return, the Applicants filed their income taxes with CRA, but they did not file a T1135 form (which is referred to as a “Foreign Income Verification Statement”
). They also did not file the T1135 for the subsequent 2019 tax year. The T1135 form must be provided by taxpayers who, at any time in the applicable tax year, own specified foreign property with a total cost amount exceeding CAD $100,000.
[5] Mr. Singh and Ms. Kaur have maintained that they failed to file T1135 forms because they misunderstood their reporting requirements: they thought that the form was only for foreign income over $100,000 and did not realise that it included foreign property worth at least $100,000. The Applicants did submit T1135 forms, on time, for the 2020 and 2021 tax years.
[6] By 2022, when the Applicants filed their tax returns for 2021, they recognized that they ought to have filed T1135s for 2018 and 2019. As such, they voluntarily disclosed the missing T1135s along with their other tax filings in April 2022.
[7] On June 1, 2022, the CRA issued Notices of Reassessment to the Applicants for 2018 and 2019, indicating that they were each being charged a $2,500 penalty for each late filing ($5,000 in total), plus arrears interest, for the late-filed T1135s.
B. Procedural History
[8] The Applicants requested relief from the penalties and arrears interest, arguing that: 1) they had acted diligently and in good faith to correct their error; 2) the error itself had minimal impact on their tax liability; and 3) paying the penalties and arrears would cause financial hardship because they did not have income and relied financially on their son.
[9] The First Level Reviewer concluded that, because the T1135s had not been filed until April 2022, the Applicants had not acted “in a timely manner to rectify the noncompliance.”
However, the First Level Reviewer granted partial relief by treating the two late filings as a single late filing and cancelling the penalty and arrears interest for 2018.
[10] The Applicants sought a second review. As part of their submissions for this review, they specifically outlined that they had been confused about their reporting requirements. They also appealed for relief based on their age and the fact that they were very recent newcomers to Canada, having only been residents since late 2018, which was the first of the two missing years from their reporting.
[11] The Second Level Reviewer [Reviewer] denied their request for further relief, finding that the Applicants were responsible for ensuring that the forms were filed on time, and noting that the CRA provides various publications to assist newcomers with filing their taxes.
[12] The Reviewer further noted that each Applicant “has a history of not filing by the due dates, has knowingly allowed a balance to exist, did not exercise reasonable care and did not act quickly to remedy the omission.”
Finally, the Reviewer found that there was no basis to the Applicants’ claim that these penalties would cause financial hardship, which the CRA interprets as an inability to afford basic necessities.
III. ISSUES AND STANDARD OF REVIEW
[13] The standard of review for the Second Level Review is reasonableness: Spence v Canada Revenue Agency, 2012 FCA 58 at para 5 citing Canada Revenue Agency v Telfer, 2009 FCA 23 at paras 24-28; recently applied by this Court in Joo v Canada (Attorney General), 2024 FC 1558 at para 26.
[14] In conducting a reasonableness review, a court “must consider the outcome of the administrative decision in light of its underlying rationale in order to ensure that the decision as a whole is transparent, intelligible and justified”
: Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65 at para 15 [Vavilov]. It is a deferential standard, but remains a robust form of review and is not a “rubber-stamping”
process or a means of sheltering administrative decision-makers from accountability (Vavilov at para 13).
[15] Of particular importance in this matter, a reasonable decision must also be “based on an internally coherent and rational chain of analysis and that is justified in relation to that facts and law that constrain a decision-maker”
(Vavilov at para 85). Any flaws or shortcoming relied upon must be sufficiently central or significant, to render the decision unreasonable (Vavilov at para 100).
[16] The Applicants raise four issues on judicial review, all of which coalesce around the reasonableness of the decision under review.
[17] First, they argue that there was ambiguity in the filing requirements associated with the T1135 process which were not adequately considered in the Reviewer’s decision.
[18] Second, they argue that the Second Level Reviewer ignored their circumstances, most notably their history of voluntary compliance with tax reporting obligations since they obtained permanent residence.
[19] Third, they argue that the Reviewer ignored their extraordinary circumstances, which include their recent arrival in Canada, and the difficulties created by the COVID-19 pandemic. As a corollary to this argument, the Applicants also say that there was an arbitrariness to the Reviewer’s decision, in that the penalty for the 2018 year was cancelled while the penalty for the 2019 year was upheld, even though the delay in filing the former was longer than the latter.
[20] Finally, they argue that the Reviewer did not adequately consider the issue of financial hardship.
[21] For the reasons that follow, I agree with the Applicants on the second of the above issues, namely that the decision-maker unreasonably assessed their circumstances and, as such, I will grant this application on this basis alone.
IV. ANALYSIS
A. Regulatory Framework
[22] Requests for relief from tax penalties or interest are governed by the discretionary regime under subsection 220(3.1) of the Income Tax Act [ITA]:
The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal period of the partnership) or on application by the taxpayer or partnership on or before that day, waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by the taxpayer or partnership in respect of that taxation year or fiscal period, and notwithstanding subsections 152(4) to (5), any assessment of the interest and penalties payable by the taxpayer or partnership shall be made that is necessary to take into account the cancellation of the penalty or interest.
[23] To assist officers in exercising their discretion, the CRA has produced a guideline, entitled Information Circular IC07-1R1: Taxpayer Relief Provisions. “Soft law”
instruments such as IC07-1R1 play an important role in structuring taxpayer relief decisions, but they are not strictly binding on CRA officers and they may not fetter their broad grant of discretion under the ITA: Vavilov at 108; Az-Zahraa Housing Society v Canada (National Revenue), 2023 FC 842 at paras 23-24.
[24] A decision on a request for taxpayer relief must also be individualized and responsive to the circumstances unique to that taxpayer: Kasirer v Minister of National Revenue, [1995] 2 CTC 329, [1995] FCJ No 349 at para 11 [Kasirer].
[25] With this in mind, IC07-1R1, sets out various factors for CRA officials to consider, the most salient of which (for present purposes) I summarize as follows:
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While not necessarily limited to these situations, relief may be granted where a taxpayer is unable to satisfy a tax obligation arising from:
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Where a taxpayer has asserted that one of above situations applies, the following factors will be considered when determining whether the Minister’s delegate will cancel or waive penalties and interest:
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owhether the taxpayer has a history of compliance with tax obligations
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owhether the taxpayer has knowingly allowed a balance to exist on which arrears interest has accrued
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owhether the taxpayer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system
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owhether the taxpayer has acted quickly to remedy any delay or omission
B. The Reviewer’s Assessment of the Applicants’ Circumstances
[26] In dismissing the Applicants’ requests for relief, the Second Level Reviewer considered each of the factors from the IC07-1R1 circular. On the question of the Applicants’ history of compliance, the Reviewer noted as follows:
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The Applicants filed two of five T1135 forms by the due dates, and no form was filed prior to the 2018 tax year.
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The Applicants filed three of five T1 tax returns by the due dates. It is noted that the T1 return for 2019 was filed on time for nil tax owing.
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Taxpayer indicated “no”
to foreign income over $100,000 CAD on their 2018 & 2019 T1 returns, and “yes”
on their 2020-2022 T1 returns.
[27] I have a number of concerns with the above statements.
[28] First, it appears that the Reviewer may have erred in indicating that the Applicants only filed two of five T1135 forms by the due dates. While the Applicants did appear to file their T1135 one day late in 2022, this seems to have been due to a technical problem on the CRA’s end, and a penalty in respect of this year was cancelled.
[29] More problematic, however, is that the other two years that the Reviewer appears to rely on were 2018 and 2019, the years for which the Applicants were seeking relief. In essence, the Reviewer found that the Applicants’ failure to file their 2018 and 2019 T1135 forms was a relevant factor in denying 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. Subsection 220(3.1) exists to respond to misfortunes that arise from our self-assessment tax system (Lafleur v Canada (Attorney General), 2026 FC 534 at para 42), and so it is unreasonable to rely on a taxpayer’s error as grounds to deny relief under this provision.
[30] Similarly, it is unclear to me that the Reviewer accurately documented the Applicants’ history of filing their T1 forms on time. Again, one of the late filings appears to relate to the one-day delay that arose because of the CRA technical issue. It is also unclear if the Reviewer was including the 2019 year in this statement, which was the year that the Applicants had no taxes owing. Taking these two circumstances into account, it appears that the Applicants have complied with their T1 filing obligations each year, which they have always maintained to be the case. Beyond this, 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. It does not appear that the Reviewer considered this contextual factor.
[31] Furthermore, it is puzzling that the Reviewer found it notable that, as a part of their compliance history, the Applicants had not filed a T1135 form prior to 2018. As noted above, the Applicants became Canadian residents in 2018. While the record suggests that they spent a brief period in Canada some ten years prior to 2018, there is no indication that they were under any obligation to file a T1135 in that period.
[32] Finally, I do not understand the relevance of the fact that the Applicants had indicated “no”
to foreign income over $100,000CAD on their 2018 & 2019 T1 returns, and “yes”
on their 2020-2022 T1 returns. This information is entirely consistent with what the Applicants have always claimed and lies at the core of their request for relief, namely that they did not understand their foreign assets to be considered “foreign income”
until after the 2019 tax year. Again, if the Reviewer relied on the Applicants’ misunderstanding of their reporting requirements to deny relief related to that same misunderstanding, the rationale is circular and lacks a coherent and rational chain of reasoning.
[33] On the third of the above factors, namely whether the Applicants have exercised reasonable care in conducting their affairs under the self-assessment system, the Reviewer stated:
- The Applicants filed two of five T1135 forms by the due dates.
- The Applicants immigrated back to Canada in 2018, they have foreign assets over $100,000CAD for 2018-2022 and they filed the 2018, 2019, and 2022 forms late.
[34] Little needs to be said about these observations, except that they replicate the same factual and conceptual defects listed above.
[35] Beyond this, however, the Reviewer does not appear to have viewed the Applicants’ substantial compliance with the self-assessment system as being relevant to their determination. Substantial compliance is not sufficient, on its own, to attract relief from tax penalties, as each taxpayer is expected to comply with their tax obligations. Nevertheless, it is a relevant consideration under this factor, and there is no indication that the Reviewer was alert to the reasonable care that the Applicants did exercise upon their arrival in Canada in 2018. A reasonable exercise of discretion is one that demonstrates a weighing of relevant factors (Vavilov at paras 127-128)– in this case, I am satisfied that the Reviewer did not include all relevant factors in this weighing process.
[36] While other facts relied upon by the Reviewer were reasonable, I am satisfied that the errors identified above are significant because they reveal a break in the Reviewer’s chain of analysis; this in turn undermines the reasonableness of the decision. In arriving at this conclusion, I am mindful of the discretionary nature of the decision under review, and that the Court must typically show deference to the decision-maker under subsection 220(3.1) of the ITA: Peter Easton v Canada Revenue Agency, 2017 FC 113. However, this discretion must be undertaken on the basis of a complete and accurate understanding of the Applicant’s circumstances, something that I am convinced did not happen in this case.
C. Applicable Jurisprudence
[37] While the above provides a sufficient basis on which to dispose of this application, I will briefly consider the jurisprudence relied upon by the parties.
[38] The Respondent refers the Court to the recent decision of my colleague Justice Sadrehashemi in Ebadi v Canada, 2025 FC 1819 [Ebadi]. That case, as this one, involved a judicial review of a Second Level Review denying relief for a late-filed T1135 form. However, I agree with the Applicant that Ebadi is readily distinguishable from the situation at hand. Mr. Ebadi failed to file T1135 forms for 2021 and 2022, alleging that technical difficulties prevented him from filing, even though he had been able to file his other tax documents for those years. There were thus some reliability questions underlying Mr. Ebadi’s request that are not present in this case.
[39] It also appears that Mr. Ebadi may have received a warning from the CRA that he would be charged penalties and arrears if he did not file his T1135 forms; there was no such warning in this case, as the Applicants voluntarily filed their T1135 forms once they realized they were obligated to do so. As such, I do not believe that the facts in Ebadi are of particular assistance to the Respondent.
[40] The Applicants have provided cases from the Tax Court of Canada and argue that while they emanate from a different context and under a different jurisdictional regime, they are nevertheless instructive in assessing the reasonableness of the decision under review. In these decisions, the Tax Court found it was unfair for the CRA to charge penalties for late-filed T1135 forms when there was evidence of an honest mistake and good faith efforts by taxpayers to meet their reporting obligations. Specifically, they refer to: Moore v R, 2019 TCC 141 [Moore], Fiset v R, 2017 TCC 63 [Fiset], and Douglas v R, 2012 TCC 73.
[41] Caution should always be exercised by this Court in relying on appeals of tax assessments, which fall under the exclusive jurisdiction of the Tax Court pursuant to section 169 of the ITA. There are important differences between this appeal process and a judicial review at the Federal Court.
[42] For instance, while the Tax Court cases cited by the Applicants concluded that it was unfair for the CRA to impose penalties where taxpayers acted in good faith, this is not the same lens that is applied by this Court. As Justice Mosley noted in Takenaka v Canada (Attorney General), 2018 FC 347 [Takenaka] (at para 37): “The task of this Court on judicial review is not to determine what is fair in the circumstances but whether the Delegate’s decision is reasonable in the legal sense…”
[43] This is not, however, the end of the story, as the Federal Court may in appropriate circumstances “take some guidance from the views expressed by the Tax Court, which is much more knowledgeable and experienced in interpreting the Act than this Court”
: Takenaka at para 38. Takenaka was also a case dealing with subsection 220(3.1) of the ITA. So, with this in mind, what relevant guidance can be taken from the Tax Court jurisprudence?
[44] For one, as Justice Mosley noted, it is important to recall that “the Act’s purpose is not to punish someone who makes a reasonable mistake in good faith”
: Takenaka at para 38, citing Fiset.
[45] Second, in Moore, Justice Boyle noted that CRA information related to T1135 reporting obligations has been, as the Applicant also argued, somewhat ambiguous. Most notably, the form in question makes no reference to foreign property but is referred to as the “Foreign Income Verification Statement.”
This ambiguity is, at the very least, relevant to the assessment of the factors set out in the IC07-1R1 circular. The jurisprudence certainly suggests that Mr. Singh and Ms. Kaur are not the first individuals who have felt misled by the Foreign Income Verification Statement, failing to appreciate that it also relates to foreign assets: Moore at paras 12-15.
[46] Third, and also flowing from Moore, the Applicants’ voluntary disclosure of their inadvertent failure to file the T1135 form was also relevant to the Second Level Review. As Justice Boyle stated (at para 22): “Is Mr. Moore’s disclosure to CRA on a voluntary basis of his failure to file a 2015 information return not the type of compliance effort CRA wants to encourage Canadians to follow?”
To be clear, I refer to these cases not because they are necessary for my disposition in this matter, but because they may be helpful in informing the next Reviewer in this matter, who will be tasked with reconsidering the Applicants’ subsection 220(3.1) request.
V. CONCLUSION and COSTS
[47] For the above reasons, this application for judicial review will be granted. The parties agreed that neither would seek costs in this matter, and so none will be awarded.
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