Published: July 16, 2020
Last Updated: July 16, 2020
Neyedly V. Attorney General of Canada – A Canadian Tax Lawyer Analysis of Judicial Review of Tax Cases
Introduction — Judicial Reviews of Tax Cases in Federal Court
Neyedly, the applicant, sold used boats but didn’t report income or expenses related to this business in 2005. This case relates to the reassessment of Neyedly’s 2005 tax year, as he seeks judicial review of the Canada Revenue Agency’s decision to deny Neyedly his relief request for interests and penalties due to the failure to report income on his 2005 return.
Neyedly claims that his accountant, who prepared his 2005 income tax returns, didn’t file his returns in a timely way. This led to the Canada Revenue Agency auditing his 2005 income tax return in 2007. But as the tax audit went underway, issues on the Canada Revenue Agency’s end, such as a change in tax auditors on the file, caused significant delays.
A Notice of Reassessment was issued October 14, 2008, which increased the applicant’s income from $22,581 to $88,332 due to his used boats business. After some back and forth, this issue was settled between the applicant and the Canada Revenue Agency.
In November 2013, Neyedly filed a taxpayer relief application to cancel the penalties and interest relating to his 2005 taxation year on the ground that the Canada Revenue Agency caused delays. This request was denied almost two years later in August of 2015. The applicant then sent a second review request in May of 2017. The Canada Revenue Agency found that the applicant’s file was dormant between September 7, 2007, and February 12, 2008, and appropriately cancelled the interest charges for this period. Other requests for relief were denied, and this decision was the basis of the judicial review.
A judicial review is a process where a court can review the decision of a government body, such as the Canada Revenue Agency, to ensure they complied with all applicable laws when coming to its decision. The court is usually concerned whether the government body had the appropriate jurisdiction and authority and whether the government body made a reasonable decision that was without a legal error.
The Canadian tax lawyer for taxpayer then raised several issues, including that the Canada Revenue Agency’s 2017 relief decision was unreasonable, to Federal Court. After the Federal Court heard the taxpayer’s submissions and the CRA responses, the Federal Court distilled three main issues:
- What is the decision being challenged, and does the Court have jurisdiction to review it?
- Is the dispute res judicata, such that it cannot be reviewed because the two parties reached a settlement for the 2005 tax dispute?
- Was the December 2017 taxpayer relief decision reasonable?
After reviewing the first two issues, the Federal Court found that they could only decide whether the December 2017 decision to reject the taxpayer relief request was reasonable. The taxpayer claimed that the relief decision should be overturned under the Taxpayer Bill of Rights because:
- The Canada Revenue Agency tax auditors did not treat Neyedly “professionally, courteously, and fairly” and were “confrontational, combative, and aggressive”
- The tax auditors didn’t respect his right to complete, accurate, clear, and timely information due to excessive delays that resulted in the applicant incurring substantial legal costs.
The Canadian tax lawyer acting for the taxpayer also made a submission under section 241 of the Income Tax Act, which states that no official government entity, such as the Canada Revenue Agency, can knowingly provide the information of a taxpayer to any person or allow any person to access this information. Further, they cannot use a taxpayer’s information outside of administration of enforcement of the Income Tax Act, and other select acts.
The applicant claimed that the Canada Revenue Agency tax auditors failed to adhere to section 214 because they lost certain documents related to the taxpayer’s file. This resulted in his inability to prove that he was entitled to specific amounts of money.
To determine whether a decision was reasonable, the Federal Court followed the Vavilov framework as articulated in Canada Post: “This Court’s role is to review the reasons given by the administrative decision-maker and determine whether the decision is based on an internally coherent chain of reasoning and is justified in light of the relevant legal and factual constraints”
With this framework and the submissions from both the respondent and the applicant, the Federal Court ruled that the Canada Revenue Agency’s decision to refuse the applicant’s taxpayer relief submission was reasonable and followed the law and administrative guidelines.
Pro Tax Tips— Judicial Reviews of Canada Revenue Agency decisions
If you believe that the Canada Revenue Agency made an improper decision, one way to challenge it is through a judicial review. Judicial reviews allow a court, such as the Federal Court, to set aside a decision due to an error in law. Vavilov is a recent Supreme Court of Canada case which changed the process of judicial reviews and the legal concept of reasonable decision making. It’s essential to find an experienced and knowledgeable Canadian tax lawyer who’s up to date on the latest tax laws before proceeding in a judicial review.
Further, submitting a judicial review for a Canada Revenue Agency decision requires working with a tax lawyer with expertise in tax law and administrative law. Our knowledgeable Canadian tax lawyers could help bring your case to court for a judicial review and ensure that the Canada Revenue Agency’s decision is set aside if there was a legal error in their decision making.
"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."