CRA denied late filing taxpayer relief on penalties and interest

The taxpayer disagreed with the CRA officer’s decision, and was asking the court to reweigh the evidence and come to a different conclusion. But this is not the court’s role. Photo by Maha Heang/Getty Images

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If you filed your 2025 tax return late, or you have yet to file, you could face a late-filing penalty of five per cent of any balance owing, plus one per cent of the balance owing for each month your return is late, to a maximum of 12 months. (Self-employed taxpayers and their spouse or partner still have until June 15 to file on time for 2025.)

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If it’s not the first time you’ve filed late, and you’ve been assessed a late-filing penalty in any of the prior three years, the penalties can double to 10 per cent of the unpaid amount, plus a two per cent penalty for each late month, to a maximum of 20 months.

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When you add to this the non-deductible arrears interest, compounded daily, charged at the current prescribed interest rate of seven per cent, the penalties and interest charges can really add up.

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Should you be hit with penalties and interest this tax season, you can ask the Canada Revenue Agency to waive or cancel them under the taxpayer relief provisions. Should the CRA refuse your request for relief, you can have the CRA’s decision reviewed by a Federal Court judge to determine whether the CRA officer’s decision was “reasonable.” That’s ultimately what happened in a recent case that was heard in court last month, involving two late-filed personal tax returns.

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The taxpayer, who works in the Canadian film and television industry as a specialized technician, appeared in a Halifax courtroom last month seeking relief from late-filing penalties and arrears interest for his tax debt arising from the 2020 and 2021 taxation years.

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In his request for relief, the taxpayer testified that he suffered “financial, familial and medical issues” during the COVID-19 pandemic that affected his ability to meet his tax filing and payment obligations. These issues included an inability to reach his long-time accountant, despite numerous calls that went unanswered, after the taxpayer and his spouse relocated from Western Canada with an infant and into a home that needed significant repairs. While the taxpayer eventually found a new accountant in Nova Scotia, it took that new accountant time to get up to speed on the taxpayer’s financial situation. In addition, the taxpayer’s health situation meant he suffered from periodic debilitating pain. To make matters worse, the film and television industry experienced significant declines in activity during the pandemic, and again in 2023.

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The initial CRA officer who reviewed his submission expressed sympathy for his situation, but nonetheless denied his request for relief. The taxpayer then requested a second review by a different CRA officer, which also resulted in a denial of his request for relief. The second CRA review officer determined that the taxpayer’s household income and tax-free savings account (TFSA) were sufficient to pay his tax balance owing without a prolonged inability to afford basic necessities of life. The CRA officer noted that the taxpayer continued to make annual contributions to his TFSA while the interest on his tax debt was accruing. The officer was also unable to find a connection between the taxpayer’s non-compliance and the circumstances he presented in his relief request.

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The taxpayer thus turned to federal court seeking a judicial review of the CRA’s second review decision. He challenged the reasonableness of the decision, arguing that the CRA failed to consider his evidence in its totality, relied on irrelevant considerations, and failed to apply its own policy.