A CRA decision refusing taxpayer relief may be reviewed by the Federal Court, but the issue is not whether the result was fair. The question is whether CRA’s reasoning was legally reasonable. In Kaur v. Canada (Attorney General), the Federal Court found that CRA’s reasons for refusing further T1135 penalty relief contained circular reasoning and sent the matter back for redetermination.
The Court did not cancel the remaining penalty. It sent the request back to CRA to be decided again, and CRA may still refuse relief on reconsideration — provided its reasons hold together this time. That distinction is the point of this article.
What happened in Kaur
Mohan Singh and Manjit Kaur immigrated to Canada in October 2018, returned to India the following month, and stayed there until May 2019. They filed their tax returns but not Form T1135 for 2018 or 2019. They filed on time for 2020 and 2021, recognized the omission while preparing their 2021 returns, and filed the missing forms in April 2022. CRA then reassessed: a $2,500 penalty for each late filing — $5,000 each in total — plus arrears interest.
They requested relief. The first-level reviewer granted partial relief, treating the two late filings as one and cancelling the 2018 penalty and interest entirely. This matters: by the time the case reached the Federal Court, only the 2019 penalty remained in issue.
A second-level reviewer refused to go further, citing late-filing history, a knowingly outstanding balance, and a lack of reasonable care. Both applicants, self-represented, sought judicial review.
The T1135 misunderstanding: foreign property, not foreign income
They believed the form applied only to foreign income over $100,000, and did not realize it captured foreign property.
Under section 233.3 of the Income Tax Act, the filing obligation generally applies where the total cost amount of specified foreign property exceeds $100,000 at any time in the year. The test measures total cost amount — not income, and not current market value. The ordinary late-filing penalty is imposed under subsection 162(7).
The Court acknowledged this is a well-worn trap: citing Moore v R, it noted the form “makes no reference to foreign property” despite its name, and that these applicants “are not the first individuals who have felt misled.”
Form T1135 reports certain specified foreign property owned by a Canadian taxpayer. It is different from Form T1134, which generally reports interests in foreign affiliates.
Why CRA’s reasoning was unreasonable
The Court identified two distinct circularity problems.
First, compliance history. The reviewer counted the failure to file the 2018 and 2019 T1135s as evidence of poor compliance — but those were the very years for which relief was sought. That logic, the Court held, “turns the premise of a request for relief into a reason for denying it.”
Second, the misunderstanding itself. The reviewer treated it as significant that the applicants answered “no” to foreign income over $100,000 for 2018 and 2019 and “yes” for later years — a pattern that is precisely what they had always claimed happened. Relying on their misunderstanding to deny relief from the consequences of that same misunderstanding was “circular and lacks a coherent and rational chain of reasoning.”
One qualification cuts both ways. The Court said substantial compliance “is not sufficient, on its own, to attract relief from tax penalties.” Nevertheless, it “is a relevant consideration” — and nothing suggested the reviewer had weighed it. Substantial compliance does not entitle you to relief. It does have to be genuinely considered.
What the Federal Court could — and could not — do
Three roles are easily confused, and the difference decides both where you go and what you can get.
- CRA holds the discretion. Subsection 220(3.1) lets the Minister waive or cancel penalties or interest, generally within ten years of the end of the year. CRA’s guideline, IC07-1R1, structures that discretion — but as the Court noted, it is administrative “soft law”: not binding on officers, and incapable of fettering the discretion the Act grants them.
- The Federal Court reviews the reasoning — whether the decision is internally coherent and justified against the facts and law. Deferential, but not a “rubber-stamping” process.
- The Tax Court hears statutory appeals from assessments — a different forum with different jurisdiction.
Crucially, the Federal Court is not deciding what is fair. As it put it, quoting Takenaka v Canada (Attorney General), its task “is not to determine what is fair in the circumstances but whether the Delegate’s decision is reasonable in the legal sense.”
The result was a redetermination, not relief — applications granted, requests remitted to CRA, no costs. A new reviewer may still refuse.
What this means for taxpayers seeking relief
This is a narrow win. The Court decided it on one of four grounds, “on this basis alone,” leaving ambiguity, extraordinary circumstances and hardship undecided, and noting that “other facts relied upon by the Reviewer were reasonable.” It does not establish that T1135 penalties are unfair or that honest mistakes must be forgiven — only that a relief decision must rest on an accurate, individualized, non-circular understanding of what happened.
The Court also discussed voluntary-disclosure case law, but said it raised those cases “not because they are necessary for my disposition in this matter, but because they may be helpful in informing the next Reviewer.” Voluntary correction did not produce this outcome.
Practical steps before requesting taxpayer relief
None of this guarantees relief. It improves the record CRA works from — and the reasons it must give if it refuses anyway.
- Document the cause of the failure specifically, rather than asserting good faith in the abstract.
- Give an accurate filing history, year by year. Kaur turned partly on a history CRA appears to have recorded inaccurately.
- Explain the corrective action and its timing.
- Separate the error under review from unrelated compliance conduct. If CRA relies on the very failure at issue, say so.
- Support any financial-hardship claim with detailed evidence. In Kaur, the CRA reviewer described hardship as an inability to afford basic necessities, but the Federal Court did not decide whether that approach was correct.
- Address each IC07-1R1 factor: compliance history; knowingly allowing a balance to accrue; reasonable care; acting quickly to remedy the omission.
- Avoid generic fairness arguments. On judicial review, fairness is not the test.
Key takeaways
- The T1135 threshold is the total cost amount of specified foreign property exceeding $100,000 — not foreign income.
- CRA cannot reasonably rely on the failure you seek relief for as evidence you do not deserve relief.
- Substantial compliance does not entitle you to relief, but CRA must genuinely weigh it.
- Judicial review returns the decision to CRA; it does not cancel the penalty.
FAQ
Is the T1135 $100,000 threshold based on foreign income?
No — it is the total cost amount of specified foreign property owned at any time in the year.
Did the Federal Court cancel the penalties in Kaur?
No. CRA had already cancelled the 2018 penalty at first level, and the Court sent the 2019 request back for redetermination. CRA may still refuse relief.
Can CRA consider my filing history when deciding taxpayer relief?
Yes — it is an IC07-1R1 factor. But in Kaur the Court held it was unreasonable to count the specific failures for which relief was requested as part of that history.
Does voluntary filing guarantee cancellation of a T1135 penalty?
No. The Court referred to voluntary-disclosure case law as guidance for the next reviewer, while stating it was not necessary to its decision.
What is the difference between a Federal Court judicial review and a Tax Court appeal?
The Tax Court hears statutory appeals from assessments and can change what you owe. The Federal Court, reviewing a relief decision, asks whether CRA’s reasoning was legally reasonable — not whether the outcome was fair — and usually sends it back to CRA.
Dealing with T1135 penalties or a CRA refusal of taxpayer relief?
Lepore & Company assists taxpayers with Canadian international tax reporting and CRA disputes, including penalty-relief requests, voluntary disclosures and related appeals. Learn more about our Canadian international tax services and CRA audit and appeals assistance.
This article is general information about a specific Federal Court decision and is not legal or tax advice. Taxpayer relief outcomes are highly fact-dependent, and this decision addressed the reasonableness of one CRA decision on one record. If you are facing T1135 penalties or considering a taxpayer relief request, please seek advice on your own circumstances.