A panel of the Federal Court of Appeal (Noël, Trudel and Stratas, JJ.A.) heard arguments this morning in Ottawa on appeals from judgments of the Federal Court which held that the Canada Revenue Agency acted reasonably in deciding not to cancel or reduce penalties and arrears interest on late-filed T1135 forms. See our earlier blog post for more information on the background to this case.

The Appellants’ main argument to the panel was that the Minister of National Revenue had improperly fettered his discretion in deciding that certain penalties and arrears interest should not be cancelled or reduced. In particular, the Appellants emphasized the fact that the CRA official, in his written reasons, held that the Appellants did not fit within the categories set out in the Taxpayer Relief Guidelines and thus that the Minister could not grant the request for relief. This, the Appellants argued, showed that the Minister did not appreciate or understand that he had unfettered discretion to provide relief. The Appellants argued, on the facts and with unfettered discretion, the reasonable conclusion would have been to grant relief.

Justice Stratas noted that on the reasonableness standard of review, a reviewing court may look to what might have been the reasons of the decision-maker.  In response, counsel for the Appellants responded that in Canada (Citizenship and Immigration) v. Khosa, the Supreme Court of Canada held that that what could have been the reasons of the decision-maker should not dilute the importance of giving reasons.

After putting the issue of “missing justification” to Crown counsel (who argued that cross-examination transcripts showed the CRA official had in fact considered all of the facts before him at the time), Justice Stratas wondered whether the CRA’s later justification was really just an exercise in bootstrapping. Members of the panel appeared concerned that taxpayers are obliged to file applications for judicial review simply in order to obtain an answer to their request for relief. Counsel for the Appellants argued that taxpayers “deserve the attention of the Minister” for their specific circumstances, given the nature of the discretion granted to the Minister under the Income Tax Act.

Justice Noël was interested in the fact that the Appellants failed to file the forms due to a common administrative error. Counsel for the Appellants described the policy objective underlying the penalty provision and argued that a multiplicity of penalties for what was actually just one common error would be disproportionate to the oversight by the taxpayers and would not advance the underlying purpose of the penalty. He argued that the existence of the common error should have had some significance to the exercise of the Minister’s discretion to cancel or reduce the penalties.

The panel reserved judgment.