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In a November 13, 2025, decision, Baxter I.C.I. Corp. v. Attorney General of Canada, 2025 FC 1816, the Federal Court dismissed an application for judicial review, upholding a Canada Revenue Agency (CRA) decision that refused to waive or cancel penalties and interest for the applicant corporation. The case reinforces the principle that the Federal Court will not reweigh evidence or interfere with the CRA's reasonable findings regarding taxpayer relief requests.
Background – A Corporation's Long-Standing Non-Compliance
The taxpayer, Baxter I.C.I. Corp., is a corporation managed by its sole shareholder, director, and officer, Mr. Baxter. The case revolved around the CRA's refusal of the taxpayer's second request for taxpayer relief, which sought to cancel penalties and interest for the 2007 to 2015 taxation years under subsection 220(3.1) of the Income Tax Act.
The taxpayer's arguments for relief were based on the sole director's mental distress and the impact of the COVID-19 pandemic.
The non-compliance issues had a long history, with the taxpayer assessed for unfiled returns for the 2010 to 2012 taxation years. The taxpayer was later audited, leading to reassessments, a notice of objection, and an appeal to the Tax Court of Canada (TCC). Following a consent judgment in 2021, new reassessments were issued in 2022, and the corporation still had a large outstanding balance and large interest accrual and penalties.
Taxpayer relief request denied
To deal with the interest and penalties resulting from the tax reassessment, the corporation requested the CRA for relief. The CRA rejected the request, and the corporation requested a second administrative review, which the CRA also rejected. The corporation's experienced Canadian tax litigation lawyer then applied to the Federal Court for a judicial review of the CRA's second refusal for relief.
The objective of a judicial review application is to determine whether the CRA was unreasonable in its consideration of Mr. Baxter (the sole director)'s mental health or the impact of the COVID-19 pandemic on the corporation's ability to pay.
The taxpayer argued that the CRA unreasonably found no connection between Mr. Baxter's mental health challenges and the corporation's persistent tax non-compliance. The taxpayer noted that Mr. Baxter's relief request for his personal tax, using the same reason, was granted and thus, not granting relief to the corporation is contradictory.
The Federal Court rejected this argument, finding that the CRA reasonably considered the evidence, including the psychologist's report and the timeline of Mr. Baxter's personal stressors (divorce and litigation with a former employee), which he reported began around 2009.
- No causal connection: the corporation's compliance issues, including late filings and payments, pre-dated Mr. Baxter's reported onset of mental health challenges and the periods he was granted relief. The CRA noted, and the Federal Court acknowledged, a history of non-compliance going back to at least 1998, with 10 of 12 tax returns between 2003 and 2015 filed late (ranging from 169 to 1811 days late).
- Alternative measures: the Federal Court affirmed that Mr. Baxter, as a director, had a responsibility to make alternate arrangements to ensure tax obligations were met, such as engaging a professional like an experienced tax lawyer, especially since the situation was ongoing.
- Inconsistent conduct: The CRA also noted, and the Federal Court acknowledged, that Mr. Baxter continued to work and make complex business decisions, such as buying a building, which was comparable to managing tax obligations.
The taxpayer contended that the CRA failed to consider the impact of the COVID-19 pandemic on the corporation's ability to pay.
- No temporal connection to non-compliance: The Federal Court accepted the CRA's finding that the non-compliance (late filings and payments) for the years requested (2007–2015) occurred long before the pandemic began in March 2020.
- Failure to provide evidence: as part of the relief request, the taxpayer was requested to provide financial documents, including profit and loss statements and balance sheets, which would have shed light on the pandemic's effect on the corporation's ability to pay. The taxpayer failed to provide this specific documentation, submitting only a general financial summary. The Federal Court found that the CRA was justified in concluding, in the absence of evidence, that the taxpayer had not established that the pandemic impacted its ability to pay.
The CRA was justified in denying the relief request
Overall, the Federal Court ruled that the CRA's decision to deny the relief request was justified by the facts and was based on an internally coherent and rational chain of analysis. The Federal Court emphasized that its role in a judicial review process is not to reweigh evidence or to treasure hunt for error. Since the taxpayer failed to establish that the CRA's decision was unreasonable, the application for judicial review was dismissed.
Pro Tax Tip – Documentation is Key in Taxpayer Relief
This case is a reminder that the burden is on the taxpayers in seeking relief from interest and penalties. The taxpayers must provide clear evidence and a direct connection between the circumstances cited (like illness, mental distress, or financial hardship) and the non-compliance.
A corporation's historical compliance record and a director's failure to implement alternative measures to meet tax obligations, even during periods of personal difficulties, can be detrimental to the relief request. Specifically, financial hardship must be substantiated with detailed financial documentation.
FAQ
If a director's personal tax relief is granted, should the corporation's relief be granted on the same basis?
The corporation and the individual are separate legal entities, and their tax relief requests are assessed based on the specific evidence relating to each circumstance. Granting relief to the director's personal tax while refusing the same to the corporation is not inherently contradictory.
What is a key factor the CRA considers when evaluating mental health as a reason for non-compliance?
The CRA generally recommends relief only if a connection can be made between the health issues and the non-compliance. If the taxpayer has a history of non-compliance that predates the health issues, or if the taxpayer continued to perform complex business functions without arranging alternate measures for tax compliance, the relief request is likely to be denied.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
