Case Commentary Cassidy v Canada: Using ‘Extraordinary Circumstances,’ CRA’s Delays, Inability to Pay, or Financial Hardship When Seeking Taxpayer Relief

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Case Commentary Cassidy v Canada: Using ‘Extraordinary Circumstances,’ CRA’s Delays, Inability to Pay, or Financial Hardship When Seeking Taxpayer Relief

Introduction: Mr. Cassidy’s Request for Taxpayer Relief

Taxpayers may, under subsection 220(3.1) of the Income Tax Act (“Tax Act”), request relief for penalties and interest in what is referred to as a taxpayer relief application (formerly known as fairness application). Granting this application is at the Canada Revenue Agency’s (“CRA”) discretion, which the CRA’s reserves for limited circumstances.

In Cassidy v Canada (Attorney General), Mr. Cassidy had made a taxpayer relief application for unpaid taxes, penalties, and interest arrears, totaling $54,059.69. His request was based on several reasons. This included financial hardship and his inability to pay, the CRA’s excessive delay in collecting the debt, and statutory limitation periods on enforcement proceedings prescribed by the Act.

The Senior Taxpayer Relief Officer (“CRA Officer”) that reviewed Mr. Cassidy’s application granted the application for two brief periods in 2020 and 2022 based on the COVID-19 pandemic and some processing delay on the part of the CRA. Mr. Cassidy appealed this decision in a judicial review to the Federal Court on the basis that the CRA Officer’s decision was unreasonable as it failed to engage with his other submissions. The Federal Court agreed with Mr. Cassidy that the decision of the CRA Officer was unreasonable, and the matter was remitted to another CRA officer for redetermination.

Background: Circumstances Outside of Mr. Cassidy’s Control

Mr. Cassidy’s balance owing to the CRA came from an assessment in 2006 that resulted in an amount owing that was not paid before the due date. In 2009, Mr. Cassidy made a request for relief for taxes, interest, and penalties. The CRA agreed to cancel installment interest and penalties in respect of unpaid taxes for 2006, as well as arrears interest on unpaid taxes up to April 30, 2008, the date on which Mr. Cassidy filed his 2007 return.

In July 2021, Mr. Cassidy made his second request for taxpayer relief. Mr. Cassidy now had $45,059.69 owing to the CRA including unpaid taxes dating from 2006. This was amount was mostly from interest that accrued due to the passage of time. His 2006 arrears $13,485.38 had interest charges of $17,786.64 and his 2011 arrears $7,834.01 had interest charges of $4,042.91. Nevertheless, he had agreed to pay the amount owing through a repayment plan of $350 per month, to be deducted from his Canada Pension Plan payments.

Mr. Cassidy based his request on his inability to pay due to financial hardship, which had resulted for several reasons. This included his divorce, the 2008 economic downturn, and the COVID-19 pandemic. Additionally, he mentioned that the limitation periods on enforcement proceedings prescribed by the Tax Act or a ten-year limitation period should apply in his circumstances. Arguing that the parties were well beyond the limitation period, and that most of the debt arose from the passage of time. Mr. Cassidy did not dispute or request relief for the taxes owed. Rather, his request for relief was for the accumulated interest and penalties.

Taxpayer Relief: The Basics

Mr. Cassidy’s request, as previously mentioned, was made under subsection 220(3.1) of the Tax Act which permits the CRA to waive or cancel any or all portions of penalty or interest otherwise payable. The CRA has developed administrative guidelines published in Information Circular 07-1R1 (“Information Circular”) that lists situations where the CRA may grant such relief. This includes situations that affect a taxpayer’s ability to satisfy tax obligations or requirements involving:

  • extraordinary circumstances;
  • actions of the CRA; or
  • inability to pay or financial hardship.

The Information Circular also provides examples of what qualifies under these circumstances. While the Information Circular is not legally binding it is often relied on by CRA officers and the courts.

Another notable feature of taxpayer relief requests is the standard by which they are reviewed by the courts. The relief under subsection 220(3.1) of the Tax Act is discretionary meaning that the CRA can decide whether to grant the relief or not. Because of this discretionary nature, taxpayers need to appeal the CRA’s decisions to the Federal Court, rather than the Tax Court of Canada. Additionally, the standard of review that the court uses in analyzing this discretionary decision is one of reasonableness.

Reasonableness is the presumptive standard of review for administrative decisions as established in Canada v Vavilov, 2019 SCC 65. As the Court highlighted in Mr. Cassidy’s case this standard allows the Court to intervene only where “there are sufficiently serious shortcomings in the decision such that it cannot be said to exhibit the requisite degree of justification, intelligibility and transparency” (Vavilov, para 100). The Federal Court clarified that the criteria of “justification, intelligibility and transparency” was met if the reasons provided allowed the Court to understand why the decision was made, and if the decision fell within a range of acceptable outcomes. Additionally, the principles of justification and transparency would require a meaningful account of the central issues and concerns raised by the parties.

The Federal Court’s Analysis: Was the CRA Officer’s Decision Unreasonable?

The court found the CRA Officer had reasonably arrived at several conclusions. First, that, with exception to the delay related to Covid-19, the CRA was not to blame for Mr. Cassidy’s accumulated debt as the CRA regularly informed him of the amount and did not engage in acts or omissions described in the Information Circular. Second, the CRA Officer’s finding respecting the irrelevance of statutory limitation periods was also reasonable as the related provisions are found in the part of the Act that deals with Collections and are unrelated to the taxpayer relief provisions.

Where the Federal Court found error with the CRA Officer’s decision was in the consideration of the circumstances beyond Mr. Cassidy’s control.  This includes his divorce, the 2008 economic downturn and the COVID-19 pandemic, which had caused him financial hardship and rendered him incapable of repaying the debt. The Federal Court highlighted that the Information Circular specifically sets out that “the following factors will be considered when determining if the minister’s delegate will cancel or waive penalties and interest:

  1. whether the taxpayer has a history of compliance with tax obligations
  2. whether the taxpayer has knowingly allowed a balance to exist on which arrears interest has accrued
  3. whether 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
  4. whether the taxpayer has acted quickly to remedy any delay or omission”

The Federal Court noted that prior to 2006, Mr. Cassidy had always paid his debts and had an excellent credit rating. His separation in 2006 caused both him and his ex-wife to owe an estimated $100,000in tax from their corporations. He paid his ex-wife’s share of the debt in full, but he continued to owe $13,485.38. This, Mr. Cassidy claimed, combined with the subsequent economic downturn of 2008 made it impossible for him to pay the remaining debt. Despite this he managed to keep his corporation in good tax standing and he had paid back most of the debt owed to business suppliers. The CRA Officer’s reasons for his decision was silent on these circumstances.

The Federal Court stated that the “reasons are the primary mechanism by which decision makers demonstrate they have actually listened to the parties.” The CRA Officer’s failure to discuss Mr. Cassidy’s circumstances showed the court that the CRA Officer had failed to engage with Mr. Cassidy’s submissions respecting financial hardship and inability to pay. Therefore, the Federal Court found that the CRA Officer’s decision was unreasonable. The Federal Court granted the application for judicial review and remitted the matter to a different taxpayer relief officer for redetermination.

Pro Tax Tip: Determining Whether You Qualify for Taxpayer Relief

Taxpayer relief is one of several tools available to taxpayers. It may not, however, always be the most suitable option for a taxpayer’s situation. Additionally, while the Tax Act permits the CRA to waive or cancel certain or all portions of penalties or interest, a taxpayer must meet the requirements set out in the CRA’s Information Circular to be entitled to relief. If you are in a situation where you think taxpayer may be appropriate, then you should consult with an experienced Canadian tax lawyers to help you determine whether it is the most suitable option and if you qualify for the taxpayer relief program.

Frequently Asked Questions

Can I seek taxpayer relief for GST/HST related interest and penalties?

Yes. A person can request relief from the CRA for interest and certain penalties payable for GST/HST under section 281.1 of the Excise Tax Act. The CRA has produced a memorandum, similar to Information Circular for Tax Act related relief, titled GST/HST memorandum 16.3 which sets out the administrative guidelines for requests made under section 281.1 of the Excise Tax Act. It is highly recommended that you speak to an expert Canadian tax lawyer if you considering taxpayer relief to deal with amounts owing related to GST/HST.

Are complications related to COVID-19 enough to justify an application for taxpayer relief?

This would depend on the nature and extent of the complications. The impact of COVID-19 has been recognized in other judicial review applications in support of the request for relief. However, the analysis of a taxpayer’s relief request is very context specific. Thus, the impact from COVID-19 discussed in those cases may not be applicable to other situations. If COVID-19 has impacted you and your ability to satisfy a tax obligation or requirement, then you should consult with an experienced Canadian tax litigation lawyer.


This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the articles. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.