Federal Court Rejects Relief for T1135 Late Filing Penalties

Date: 20260714 Docket: T-1947-24 T-1949-24 Citation: 2026 FC 937 Montréal, Quebec, July 14, 2026 PRESENT: Mr. Justice Joyal BETWEEN: [NAME] Applicant and THE [NAME] OF CANADA Respondent

REASONS AND

JUDGMENT 1. Introduction [ 1 ] The Applicants, [NAME] and [NAME], seek judicial review of two decisions by a Canada Revenue Agency ([NAME]) official, acting as a Delegate of the Minister of National Revenue, denying their requests for relief under subsection 220(3.1) of the Income Tax Act , RSC 1985, c 1 (5th Supp). [ 2 ] The Applicants asked the Minister to cancel the penalties and interest assessed by the [NAME] following the late filing of their T 1135 Forms ( “Foreign Income Verification Statement” ) for the 2021 tax year. They claimed the delay was the result of their reliance on misleading and incomplete information from the [NAME]. The Delegate found that the Applicants did not demonstrate the existence of circumstances beyond their control that prevented them from meeting their tax obligations. [ 3 ] For the following reasons, the Applicants have not convinced me that the Delegate’s decision was unreasonable. In substance, t he Applicants ask the Court to come to a different conclusion than the Delegate, which is not the role of the Court on judicial review. I am therefore dismissing these applications for judicial review.

II. Background [ 4 ] I will first review the facts that led the [NAME] to impose the late-filing penalties, then summarize the Applicants’ arguments in support of their requests for relief and the Delegate’s reasons for rejecting them. A. The 2020 tax adjustment request [ 5 ] The Applicant [NAME] owns commercial property in the United States through [COMPANY], from which he derives rental income. The other Applicant, [NAME]’s spouse, also has investments in the US. [ 6 ] In 2020, [NAME] sold one of his properties, which generated a taxable capital gain for him. [ 7 ] While preparing [NAME]’s 2020 tax return, his accountant calculated the capital gain at issue, but [NAME] believed the estimate was significantly inflated. To avoid penalties and interest, [NAME] and his spouse nevertheless filed their 2020 income tax returns based on the higher figure, relying on the accountant’s assurance that they could later request an adjustment to reflect the correct capital gain. However, as [NAME] put it in his affidavit, “[t]he greater than expected capital gain resulted in the full RRSP contribution being deducted in 2020, leaving no unused portion to be used in 2021” . [ 8 ] On April 4, 2022, [NAME] was informed by his accountant that he had filed a T1 Adjustment Request for the 2020 tax year that reduced the taxable capital gain. This allowed him to lower his 2020 RRSP deduction, freeing up unused RRSP contribution room to carry forward to 2021. [ 9 ] On April 25, 2022, [NAME] called the [NAME] to check the status of the 2020 T1 Adjustment Request. As the 2020 reassessment was still pending, he was advised to submit his 2021 income tax return on time without claiming the newly freed-up RRSP carry-forward. He was also told that once he received both the 2020 notice of reassessment and the 2021 notice of assessment, he could file a new T1 Adjustment Request for the 2021 tax year to include the corrected RRSP deduction amount. [ 10 ] Rather than follow this route, and hoping to avoid submitting another adjustment request, [NAME] inquired about the consequences of filing his 2021 tax return late while waiting for the 2020 reassessment, a course he considered necessary to ensure the correct RRSP deduction amount was applied. According to him, he was told by a [NAME] that “penalties are charged if you file your return late and have a balance owing.” B. The late filing of Form T1135 [ 11 ] On April 30, 2022, the filing deadline passed for the Applicants’ 2021 income tax returns. Crucially, this date also marked the deadline for filing their T1135 Form, the prescribed return used to disclose specified foreign property to the [NAME]. [ 12 ] Pursuant to section 233.3 of the Income Tax Act , residents holding specified foreign property above certain thresholds must file Form T1135 annually, on or before their [NAME] filing-due date. The Applicants met these thresholds and were therefore required to file this form for the 2021 tax year, as they had already done in previous years. [ 13 ] On July 21, 2022, [NAME] received his 2020 notice of reassessment. [ 14 ] On December 12, 2022, nearly eight months after the applicable deadline, [NAME], who by then had decided to prepare his and his wife’s returns without an accountant, personally filed their 2021 T1 income tax returns and T1135 Forms. The Applicants did not owe income taxes for the 2021 tax year; in fact, both received refunds. C. The [NAME]’s 2021 assessment [ 15 ] On January 26, 2023, the [NAME] issued notices of assessment for the 2021 tax year, imposing on each of the Applicants a $2,500 penalty plus interest for the late filing of their T1135 Forms. [ 16 ] Pursuant to paragraph 162(7)(a) of the Income Tax Act , every person who fails to file an information return as and when required is liable to a penalty. Late-filing penalties are imposed even if no tax is owing. Unlike standard income tax late-filing penalties under subsection 162(1), which calculate penalties as a percentage of unpaid tax, subsection 162(7) relies entirely on flat dollar amounts. D. The Applicants’ requests for relief [ 17 ] On August 6, 2023, [NAME] submitted to the [NAME] a first-level request for [NAME] relief for himself and his wife, asking that the [NAME] cancel the penalties and interest imposed on them. [ 18 ] The request was made pursuant to subsection 220(3.1) of the Income Tax Act , which grants the Minister the discretionary authority to provide relief from tax penalties or interest: Waiver of penalty or interest (3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a [NAME] (or in the case of a [NAME], a fiscal period of the [NAME]) or on application by the [NAME] on or before that day, waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by the [NAME] in respect of that taxation year or fiscal period, and notwithstanding subsections 152(4) to (5), any assessment of the interest and penalties payable by the [NAME] shall be made that is necessary to take into account the cancellation of the penalty or interest. Renonciation aux pénalités et aux intérêts (3.1) Le ministre peut, au plus tard le jour qui suit de dix années civiles la fin de l’année d’imposition d’un contribuable ou de l’exercice d’une société de personnes ou sur demande du contribuable ou de la société de personnes faite au plus tard ce jour-là, renoncer à tout ou partie d’un montant de pénalité ou d’intérêts payable par ailleurs par le contribuable ou la société de personnes en application de la présente loi pour cette année d’imposition ou cet exercice, ou l’annuler en tout ou en partie. Malgré les paragraphes 152(4) à (5) , le ministre établit les cotisations voulues concernant les intérêts et pénalités payables par le contribuable ou la société de personnes pour tenir compte de pareille annulation. [ 19 ] The purpose of the provision is to allow the Minister to provide relief to taxpayers where, due to personal misfortune or circumstances beyond their control, there has been a failure to comply with a statutory requirement ( [NAME] v Canada (National Revenue) , 2011 FCA 186 at paras 22-25 ). [ 20 ] On February 5, 2024, the [NAME] denied the Applicants’ first request for [NAME] relief. As that initial decision does not form the basis of the current judicial review applications, it is unnecessary to recite the reasons here. [ 21 ] On March 28, 2024, [NAME] submitted a second-level request for an independent review. He emphasized that he specifically inquired with [NAME] about late filing penalties and was “assured that unless I owe tax, there would be no penalty.” He asserted that “the [NAME] website and the Federal Income Tax and Benefit Guide are deceiving” because the “Penalties” section only states that [NAME] may charge a penalty if you “1) file your return late and owe tax, 2) failed to report an amount, or 3) made a false statement or omission.” None of these reasons applied to his situation. [ 22 ] He further submitted the fact a specific form can have its own separate penalty is “not '[NAME] knowledge' but rather specific knowledge.” He argued that “[NAME] has made it virtually impossible to become aware of that fact unless you already know that specific forms may incur a penalty and specifically look up the form.” [ 23 ] On July 3, 2024, [NAME], acting as the Minister’s Delegate, issued a decision in which she denied the Applicants’ request for relief, for the following reasons: - The facts and circumstances described by the Applicants did not affect their ability to file Form T1135 when and as required; - Form T1135 is a separate filing requirement from the Applicants’ income tax return where different penalty rules apply and Form T1135 can be submitted separately from the T1 return; - The information given by the [NAME] officer was technically correct: no penalty or interest is assessed for late filing a tax return if a [NAME] does not owe tax; - Form T1135 has no tax liability, and a penalty is charged when the form is not received by the due date; - There was no delay or error from the [NAME] that affected the Applicants’ ability to file and make payments when due; - The 2021 T1 return and Form T1135 were filed approximately 5 months after the 2020 tax year notice of reassessment was issued; - Information concerning the penalty for late filing Form T1135 is readily available on the government’s website under “Foreign reporting” ; and - Oversight, lack of knowledge, or unintentional error are not considered circumstances beyond a [NAME]’s control.

III. Issues [ 24 ] The Applicants’ applications for judicial review raise the following issues: a) Is Exhibit H.2 attached to the Applicants’ affidavit admissible? b) Did the Delegate reasonably exercise her discretion in deciding not to cancel the penalties and interest assessed against the Applicants for the 2021 tax year? IV. Analysis A. Preliminary matter: Representation of [NAME] [ 25 ] At the outset of the hearing of these applications for judicial review, I allowed the Applicant [NAME], who is representing himself, to present arguments on behalf of his spouse, [NAME], also an applicant in these matters. [ 26 ] In the normal course, under section 119 of the Federal Courts Rules , a party appearing before this Court either is represented by a lawyer or is self-represented. [ 27 ] In some cases, this Court has relied on its discretion to allow an individual, who is not a party to the litigation, to speak at the hearing on behalf of a self-represented party ( [NAME] v Canada ([NAME]) , 2018 FC 677 at para 4; [NAME] v Canada , 2012 FC 1050 at paras 12-15). The present situation is different in that the Applicant is already a party and is asking for permission to speak on behalf of his co-applicant. [ 28 ] Beyond the Respondent’s lack of objection, I considered that [NAME] acted as the authorized representative for [NAME] in their dealings with the [NAME]. Importantly, the facts which have led to the Delegate’s decisions, the Delegate’s decisions themselves, and the issues and arguments put forward by the Applicants are, in substance, the same in both cases. These are, moreover, the same reasons for which the Court ordered the two cases consolidated. [ 29 ] Therefore, any reference in these reasons to [NAME]’s case should be deemed to be a reference to the case of [NAME] as well, unless otherwise stated. B. Is Exhibit H.2 attached to the Applicants’ affidavit admissible? [ 30 ] The Respondent asked the Court to disregard Exhibit H.2, attached to the affidavit filed by the Applicants as part of their application record. This exhibit is a nine-page printout of search results obtained by [NAME] on the [NAME] website on October 21, 2022, using the keywords “penalties for late filing” . For the following reasons, I agree Exhibit H.2 is inadmissible and should not be considered as part of these applications for judicial review. [ 31 ] At the time of the requests for relief at issue, [NAME] represented generally to the [NAME] that he had made searches on the [NAME] website. However, he did not provide a copy of the list of search results he generated. [ 32 ] Since this document was not provided to the Delegate who made the decisions in these cases, it is not relevant to the issues raised by the applications for judicial review and should be disregarded by the Court. [ 33 ] In a judicial review, the only relevant evidence is normally that which was before the decision maker ( Tsleil-[NAME] v Canada ([NAME]) , 2017 FCA 128 at para 97 [ Tsleil-[NAME] ]; Association of Universities and Colleges of Canada v [NAME] (Access Copyright) , 2012 FCA 22 at paras 19-20). [ 34 ] There are three recognized exceptions to that [NAME] rule, although the list of exceptions is not closed. These include evidence: (i) providing [NAME] background to assist the Court in understanding the issues relevant to the judicial review, (ii) dealing with procedural defects that cannot be found in the evidentiary record, and (iii) highlighting the complete absence of evidence before the administrative decision maker when it made a particular finding ( Tsleil-[NAME] at para 98). However, none of these exceptions applies to allow the admission of Exhibit H.2. [ 35 ] Even setting aside that it was never before the Delegate, I would have given Exhibit H.2 very little weight. This is because the printout in Exhibit H.2 contains only a portion of the approximately 592 search results obtained by the Applicants. In these conditions, it would not have allowed the Court to test the Applicants’ claims. [ 36 ] Although I have ruled that Exhibit H.2 was inadmissible, I should mention that the Respondent did not object to the admission of Exhibits C to G attached to the Applicants’ affidavit. These exhibits consist of screenshots from the [NAME] website, including excerpts from the [NAME]’s online Income Tax and Benefit Guide . I agree these exhibits are admissible for the following reasons. [ 37 ] In support of his requests for relief, [NAME] did represent to the [NAME] that he had consulted the [NAME] website and the Guide , but he maintained the information he consulted was “deceiving” . These exhibits go to the Applicants’ assertion that it is “virtually impossible” to locate information on penalties for the late filing of Form T1135. [ 38 ] Unlike Exhibit H.2, I consider this evidence relevant for the purpose of these applications for judicial review. Although these exhibits were not “physically” before the Delegate, they were fairly put in issue by the Applicants. In addition, they reproduce public information taken directly from the [NAME]’s own website, without the intervening act of a search. Thus, they may be regarded as already being, in a sense, constructively part of the record before the decision maker. [ 39 ] For the same reasons, I am prepared to consider Exhibits 1 to 4 appended to the affidavit of [NAME], the Delegate who made the decisions under review, which was included in the Respondent’s record. [ 40 ] As I will discuss later in these reasons, these exhibits, which annex copies of certain extracts from the [NAME] website, provide necessary context for the Applicants’ exhibits. They bear on whether the Guide , which the Applicant claims he consulted, allows a [NAME] to find specific information about penalties for the late filing of Form T1135 . This material relates directly to the Delegate’s finding that such information is “readily available” on the [NAME] website. C. Did the Delegate reasonably exercise her discretion in deciding not to cancel the penalties and interest assessed against the Applicants for the 2021 tax year? i. Standard of review [ 41 ] It is well-established that reasonableness is the standard of review applicable to the exercise of the Minister’s discretion to grant relief or not under subsection 220(3.1) of the Income Tax Act ( [COMPANY]. v Canada ([NAME]), 2011 FCA 299 at para 20; Canada Revenue Agency v [NAME] , 2009 FCA 23 at paras 2 and 24, leave to appeal to SCC refused, [2009] S.C.C.A. No. 142 [ [NAME] ]; [NAME] v Canada (Customs and Revenue Agency ), 2005 FCA 153 at para 7) . [ 42 ] As the Federal Court of Appeal held, the “unstructured nature” of the Minister's powers under subsection 220(3.1) of the Income Tax Act militates against a court subjecting the decision-making process to close scrutiny ( [NAME] at para 40). [ 43 ] In Canada (Minister of Citizenship and Immigration) v Vavilov , 2019 SCC 65 [ Vavilov ], the Supreme Court set out certain principles for how to conduct a reasonableness review. [ 44 ] At bottom, r easonableness review must start from a posture of judicial restraint ( Vavilov at paras 13, 24 and 75). A reviewing court is required to consider the outcome of the administrative decision in light of its underlying rationale to ensure that the decision as a whole is transparent, intelligible, and justified ( Vavilov at para 15). [ 45 ] The focus of reasonableness review must be on the decision actually made by the decision maker, including both the decision maker’s reasoning process and the outcome ( Vavilov at para 84). A reasonable decision is one that is based on an internally coherent and rational chain of analysis and that is justified in relation to the facts and law that constrain the decision maker ( Vavilov at para 85). [ 46 ] In short, as this Court put it, “[…] the Court must thus show deference to the Minister’s Delegate” ( [NAME] v Canada Revenue Agency , 2017 FC 113 at para 41). ii. Application to the Delegate’s decision [ 47 ] [NAME] raised two main arguments before the Delegate: 1) that he was misled by the information received from a [NAME]; 2) that the information available on the [NAME] website made it “virtually impossible” to know if there was a specific penalty for the late filing of Form T1135. [ 48 ] I n my view, the Delegate’s decision is reasonable, as it exhibits the requisite hallmarks of “justification, transparency, and intelligibility” ( Vavilov at para 99). The record demonstrates that the Delegate was fully alive to, and sufficiently grappled with, the Applicants’ arguments. [ 49 ] While the Applicants may disagree with the Delegate's conclusions, such disagreement does not show a serious shortcoming that would render the decision unreasonable. Ultimately, the Applicants have not convinced me that the decision maker failed to engage with the evidence or that the resulting analysis lacks a rational connection to the facts and the law. [ 50 ] Regarding the telephone conversation of April 25, 2022, with a [NAME] acknowledged at the hearing that the discussion did not specifically focus on Form T1135. In his conversation, he inquired generally if there would be a penalty if he waited for the result of his 2020 T1 adjustment request and filed his 2021 tax return late so as to use the correct RRSP deduction amount . [ 51 ] In that context, the Delegate reasonably concluded that the information provided by the [NAME] — stating that no late-filing penalty would apply if no tax was owing — was indeed accurate. The Delegate could reasonably conclude that this comment related to the T1 return, rather than the T1135 Form, as this form does not in itself generate any tax liability. [ 52 ] I am not persuaded by the Applicant’s argument that the agent was aware that his situation involved foreign property and should have cautioned him about the separate penalty for the late filing of Form T1135. [ 53 ] As I indicated, the Applicant asked generally about the consequences of filing his 2021 tax return late while waiting for the result of the 2020 T1 adjustment request. The notes to file show that the Applicant referred to the fact he made an error in reporting a capital gain, but I see no evidence that he ever referred to his foreign property or having to file a T1135 Form. [ 54 ] Even if the agent had been aware of the foreign property, an inquiry framed around the timing of the T1 return imposed no duty to volunteer advice on the distinct T1135 regime. To hold otherwise would improperly impose on [NAME] inquiries agents a broad obligation to anticipate every collateral filing obligation that might arise from a [NAME]’s particular circumstances and to provide exhaustive advice without being asked to do so. [ 55 ] The Canadian tax system is based on self-assessment and the onus is on the [NAME] to know the law and conduct their financial affairs in accordance with the Income Tax Act ( [NAME] v. Canada ([NAME]) , 2022 FC 39 at para 20; [NAME] v. Canada (National Revenue) , 2017 FC 1006 at para 55; [NAME] v Canada (Revenue Agency ), 2011 FC 721 at para 17). [ 56 ] This fundamental principle was specifically reiterated in a number of cases involving the late filing of Form T1135 ( [NAME] v Minister of National Revenue , 2021 FC 1469 at paras 20 and 24; [NAME] v Canada ([NAME]) , 2010 FC 459 at para 12; [NAME] v. Canada ([NAME]) , 2014 FC 934 at para 9 [ [NAME] ]). [ 57 ] In these circumstances, it was reasonably open to the Delegate to conclude that the Applicants remained responsible for identifying and complying with their distinct filing obligations in respect of Form T1135. [ 58 ] T he decision in [NAME] v Canada ([NAME]) , 2019 FC 1435 [ [NAME] ], is particularly apposite. In [NAME] , the [NAME] sought relief from late-filing penalties for Form T1135 after allegedly being told by an agent that no penalty would be imposed if no tax was owing. Like in the present case, the applicant admitted she did not inquire specifically about the T1135 Form. This led the Court to observe that the applicant was “a bright individual and conscientious enough to call [NAME] and also to speak to a Certified Public Accountant, but she chose not to ask the right question” ( [NAME] at para 18; see also [NAME] at para. 9). [ 59 ] I also find reasonable the Delegate’s treatment of the Applicants’ second main argument, namely that information about penalties for the late filing of Form T1135 was “virtually impossible” to locate on the [NAME] website. Although the Applicants’ efforts to find the relevant information were a proper consideration to submit to the Delegate, I see no reviewable error in the Delegate’s assessment of that claim. [ 60 ] The online Guide , which [NAME] claims to have consulted, contains a passage specifically dealing with Form T1135. The Applicant was aware of this passage since he attached an excerpt to his affidavit. In addition to stating that the T1135 Form must be filed by April 30, 2022, this passage contains a hyperlink which specifically refers to a webpage containing “more information” on Form T1135. [ 61 ] That webpage in turn clearly states that “Form T1135 must be filed on or before the due date of your income tax return” and adds that “[t]here are substantial penalties for failing to complete and file Form T1135 accurately and by the due date” . The webpage also contains a hyperlink to another webpage entitled “Table of penalties” , explicitly detailing that the penalty for non-compliance is $25 per day, up to a maximum of $2500 . [ 62 ] At the hearing, [NAME] essentially argued that having to click through hyperlinks to find the relevant information proves that it is not “readily available” . I find this argument unpersuasive in the circumstances of this case. T he Applicant stated to the Delegate that the consulted the online Guide , which is divided into several sub-sections, and necessarily required him to navigate through hyperlinks. He had, moreover, presented himself as being able to conduct searches on the [NAME] website. It was not unreasonable in this context for the Minister’s Delegate to expect that a [NAME] in his position would navigate through the relevant hyperlinks to obtain the required information and ensure full compliance with his tax obligations. [ 63 ] Finally, at the hearing, the Applicant relied on the decision of the Tax Court of Canada in [NAME] v The Queen , 2012 TCC 73 [ [NAME] ]. In that case, Woods J. concluded that the assessment should be vacated, as he was of the view that the [NAME] reasonably believed that the late filing of Form T1135 was acceptable because he had no tax owing for that year and, as such, had acted with due diligence. [ 64 ] I find that [NAME] is distinguishable and does not affect my conclusion for a number of reasons. Notably, [NAME] was decided by the Tax Court of Canada in the context of an appeal from an assessment. In such a setting, that Court has accepted that a [NAME] may raise a due diligence defence to penalties for the late filing of Form T1135 ( [NAME] v [NAME] , 2025 TCC 130 at para 4). The present context is fundamentally different as it involves a discretionary decision by a ministerial delegate to accord relief or not to a [NAME]. Moreover, on judicial review, the Federal Court can only intervene if the delegate’s decision was unreasonable having regard to the facts before the delegate. [ 65 ] In the end, I agree with the Respondent that the Applicants have not shown that the Delegate’s refusal to cancel the penalties and interest assessed for the 2021 tax year was unreasonable. It was open to the Delegate to conclude that the Applicants had not established circumstances beyond their control that prevented them from complying with their tax obligations. IV Conclusion [ 66 ] For the foregoing reasons, I am dismissing these applications for judicial review. [ 67 ] At the conclusion of the hearing, I inquired whether the parties had engaged in any prior discussions regarding the issue of costs, in accordance with paragraph 82 of this Court’s [NAME] of June 20, 2025. While the parties indicated they had not, they expressed a willingness to do so. Consequently, the Court granted a brief adjournment to allow the parties to confer. [ 68 ] The parties agreed that the disposition of costs should follow the usual rule whereby the successful party is entitled to their costs. Furthermore, they agreed that the quantum of such costs should be set in the amount of $500 in total for both files. [ADDRESS] thanks the parties for resolving this issue between themselves. [ 69 ] As the Applicants have been unsuccessful in these judicial review proceedings, and in accordance with the agreement reached between the parties, I award costs to the Respondent in the amount of $500 in total for both files.

JUDGMENT in T-1947-24 and T-1949-24 THIS COURT’S

JUDGMENT is that: The applications for judicial review are dismissed; Costs in the amount of $500.00 are awarded to the Respondent. blank "François Joyal" blank Judge FEDERAL COURT SOLICITORS OF RECORD DOCKET: T-1947-24 & T-1949-24 STYLE OF CAUSE: [NAME] & [NAME] v THE [NAME] OF CANADA PLACE OF HEARING: MONTREAL, QUEBEC DATE OF HEARING: JUNE 17, 2026

REASONS FOR

JUDGMENT: JOYAL, J. DATED: july 14, 2026 APPEARANCES : [NAME]-[NAME] For The Respondent SOLICITORS OF RECORD : [NAME] of Canada Montreal, Quebec For The Respondent