Judicial Review of CRA Decisions in the Federal Court

The Tax Court of Canada has exclusive jurisdiction to decide whether an assessment is correct, meaning whether the amount of tax owing is right under the law. If you disagree with a reassessment, the route is a Notice of Objection followed by an appeal to the Tax Court.

The Federal Court reviews the lawfulness of administrative decisions that do not determine the correctness of an assessment. Many important CRA decisions fall into this category, and choosing the wrong forum can waste time and deadlines. Part of our role is to identify the correct route at the outset.

Judicial review is not a fresh hearing of your case. Under the framework set out by the Supreme Court of Canada in Vavilov, the Federal Court generally asks whether the CRA's decision was reasonable: whether it was justified, transparent and intelligible, and consistent with the facts and law the decision-maker was required to consider. The court also asks whether the process was procedurally fair.

Common grounds of review include ignoring relevant evidence, misunderstanding the facts, failing to address the taxpayer's key submissions, applying the wrong test or guidelines rigidly, and giving inadequate reasons. The evidence before the court is usually limited to what was before the decision-maker, which is why the quality of the original request matters so much.

If the application succeeds, the court usually sets aside the decision and sends the matter back to a different CRA decision-maker to decide again, in accordance with the court's reasons. The court rarely substitutes its own decision. In practice, a successful judicial review often leads to a better outcome on redetermination, and the court can award costs.

Recent Federal Court decisions have criticized the CRA for unreasonable taxpayer relief decisions, including in cases involving TFSA overcontribution penalties, illness and financial hardship. These decisions give taxpayers meaningful leverage when the CRA has not properly considered their circumstances.

Because the Federal Court reviews the record that was before the CRA, the best judicial review cases are built at the request stage. A well-prepared taxpayer relief or VDP application, with complete evidence and clear submissions, both improves the chance of success with the CRA and creates a stronger record if the matter goes to court. Where a first-level request has been denied, taxpayer relief decisions can usually be reconsidered through a second administrative review before judicial review.

A judicial review begins with a Notice of Application filed in the Federal Court and served on the Attorney General of Canada. The applicant may request the certified tribunal record, which includes the materials before the CRA decision-maker and their reasons or notes. The parties then file affidavit evidence, may cross-examine on affidavits, and file written memoranda of fact and law before a hearing is scheduled.

Most tax-related judicial reviews are decided on the record and written arguments at a hearing of a few hours. The timeline from filing to hearing is often several months to a year. Costs may be awarded to the successful party. Because the process is document-based, the clarity of the original request to the CRA, and of the affidavit evidence filed in court, has a large effect on the outcome.