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Published: April 16, 2020

Last Updated: May 21, 2020

Hughes v. the Queen – French versus English Statutory Interpretation – Repeated Failure to File Penalties – ITA s. 162(2) – Toronto Tax Lawyer Case Comment

Summary Hughes v. the Queen

In Hughes v. the Queen [2017 TCC 95] the Tax Court of Canada found that a repeated failure to file penalty under s. 162(2) of the Income Tax Act (the “Act”) can only apply where four conditions are met. A repeated failure to file penalty is calculated in two parts: 10% of unpaid tax on the filing deadline and 2% of unpaid tax multiplied by the number of months (up to 20) that passed between the filing deadline and the return filing date. Previously, a plain reading of the English provision required that only three conditions be satisfied. A detailed analysis of the English and French versions of s. 162(2) revealed that the two texts were irreconcilable. Justice Jorré applied the appropriate rules of statutory interpretation and determined that the French meaning must prevail.

The two versions of s. 162(2)

Partial versions of s. 162(2) in both English and French are reproduced below.

162(2) Every person (a) who fails to file a return of income for a taxation year as and when required by subsection 150(1),
(b) to whom a demand for a return for the year has been sent under subsection 150(2), and
(c) by whom, before the time of failure, a penalty was payable under this subsection or subsection 162(1) in respect of a return of income for any of the 3 preceding taxation years is liable to a penalty equal to the total of…

162(2) La personne qui ne produit pas de déclaration de revenu pour une année d’imposition selon les modalités et dans le délai prévus au paragraphe 150(1) après avoir été mise en demeure de le faire conformément au paragraphe 150(2) et qui, avant le moment du défaut, devait payer une pénalité en application du présent paragraphe ou du paragraphe (1) pour défaut de production d’une déclaration de revenu pour une des trois années d’imposition précédentes est passible d’une pénalité égale au total des montants suivants:…. [Emphasis added.]

The Penalty Provision and the Importance of s. 150(2) of the Act

Generally, s. 162(2) creates an additional penalty when the taxpayer fails to file on time, receives a demand to file, and has received a failure to file penalty or repeated failure to file penalty within the three preceding taxation years.

The Hughes v the Queen decision is a statutory interpretation case so Justice Jorré analyzed all the provisions referenced in s. 162(2) in great detail.

The repeated failure to file penalty references the following sections of the Act:

  • s. 150(1) which is the general rule which requires a taxpayer to file an income tax return;
  • s. 150(2) which is the demand to file provision; and
  • s. 162(1) which is the failure to file penalty provision.

The key difference between the French and English texts pertains to s. 150(2) or the demand to file provision. The critical parts of s. 150(2) are laid out below:

Every person … shall, on demand sent by the Minister, file, within such reasonable time stipulated in the demand … a return of the income for the taxation year designated in the demand.

To summarize, s. 150(2) creates “an obligation on the person to file his return within a specified reasonable time”. What is odd is that the English version of the text is not concerned with whether the demand to file has been complied with or not before levying the penalty. The text simply reads “to whom a demand for a return for the year has been sent under s. 150(2)”. In other words, the repeated failure to penalty can apply even if a taxpayer has complied with the demand to file. All that is necessary is for the demand notice to be sent.

As opposed, the French text includes the words “après” (after), “de le faire” (to do so) and “conformément au paragraphe 150(2)” (in accordance with subsection 150(2)) so, in effect, the French version says “after having been given formal notice to do so in accordance with 150(2). ” In other words, to do so in accordance with s. 150(2) is to comply with the demand to file sent under that section. A taxpayer complies with the demand to file by providing the requested information (the return) within the reasonable time specified in the demand.

As such, the four requirements in the French text for the repeated failure to file penalty are as follows:

  • The person must fail to file a return of income as and when required by s. 150(1).
  • A demand for a return for the years must have been sent to the person under s. 150(2).
  • The person must have failed to file his return within the reasonable period set out in the demand.
  • The person must, before the time of failure, have been liable for a penalty for failure to file on time or for a repeated failure to file on time in respect of an income tax return for any of the three preceding taxation years.

The third requirement (of four) of the French text is a condition absent from the English version where only three conditions are required. The two texts cannot be reconciled.

The Rules of Interpreting Bilingual Statutes: Why does the French meaning prevail?

Justice Jorré followed the approach set out by the Supreme Court of Canada in R. v. S.A.C. to come to his conclusion. Per this approach, if the texts are irreconcilable, the ordinary rules of interpretation apply. The ordinary rules for interpreting the Act were set out by the Supreme Court of Canada in Canada Trustco Mortgage Co. v. Canada. Under these rules, a textual, contextual and purposive analysis must occur to find a meaning that is harmonious with the Act as a whole.

Income tax penalties, including s. 162(2) underwent legislative reform in 1988. These changes, among others, were proposed in the 1987 White Paper Tax Reform and “are important to a textual, contextual, and purposive analysis.”

Justice Jorré examined s. 162(2) in its previous form. Under the old version the Minister was required to demonstrate someone “willfully attempt[ed] to evade payment of the tax payable … by failing to file a return ,” and the penalty was set at 50% of the “tax sought to be evaded.” Subsection 162(2) in its current form can be just as severe as the old version after 20 months of delay. It is also difficult to imagine a situation where a 50% penalty (under the old version) would be successfully applied to a taxpayer that was only a few months late to file a return. Taking both concepts into consideration 1) that the penalty, in its current form, is still a severe one and 2) the unlikelihood of proving that the taxpayer willfully attempted to evade payment of taxes by filing a couple months late, it is “hard to see what purpose is served if all that is required is for the Minister to send a demand and nothing more.”

As such, the French language version is more consistent with the purpose and overall scheme of the act.

Tax Tips for a Taxpayer Assessed Under the Penalty Provisions of the Tax Act

Being assessed under the penalty provisions of the Tax Act is an unpleasant, and expensive, experience. As demonstrated in this article, the interpretation of these tax penalty provisions can be a complicated exercise. Even if interpretation is not in issue, a Taxpayer can put their best foot forward by consulting an expert Toronto Tax Lawyer to attack the basis on which the penalties are being levied.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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