When the Canada Revenue Agency refuses to waive interest or penalties, many taxpayers assume that a judge can simply look at the situation, decide it was unfair, and order relief. The decision of the Federal Court of Appeal in Telfer v. Canada (Revenue Agency), 2009 FCA 23, shows why that assumption is wrong, and why it matters so much to how a relief file is built. The Court overturned a Federal Court judge who had set aside the Minister's refusal to waive interest, holding that the judge had crossed the line from reviewing the decision to re-making it. For anyone considering a taxpayer relief application or a judicial review of a denial, Telfer is essential reading: it defines the narrow ground on which these challenges are actually won.
This article explains the taxpayer relief mechanism, what happened in Telfer, the standard a reviewing court applies to the Minister's discretion, and the practical steps that separate a relief request that succeeds from one that fails.
The facts
Ms. Dianne Telfer had been reassessed for several taxation years and filed notices of objection. Rather than processing those objections immediately, the CRA held them in abeyance to await the outcome of related litigation then making its way through the courts. Once that litigation was resolved, Ms. Telfer settled her tax liability. By that point, however, more than three years had passed since she filed her objections, and a substantial amount of interest, in the order of ten thousand dollars, had accumulated on the unpaid balance during the delay.
Ms. Telfer then asked the Minister to waive that interest under the taxpayer relief provisions. Her central argument was that the delay was not of her making: it had suited both sides to hold the objections in abeyance pending the related case, and it would be unfair for her to bear the interest cost of a delay she had effectively been asked to accept. The CRA refused at first instance, and refused again on a second-level administrative review.
Ms. Telfer applied to the Federal Court for judicial review. The applications judge agreed with her, set aside the Minister's refusal, and sent the matter back for reconsideration. The CRA appealed that result to the Federal Court of Appeal.
The issue
The taxpayer relief power lives in subsection 220(3.1) of the Income Tax Act. It gives the Minister of National Revenue a discretion to waive or cancel all or part of any penalty or interest otherwise payable. The word that does the heavy lifting is discretion. The provision does not say that relief must be granted whenever a delay occurs, or whenever a taxpayer can point to circumstances beyond their control. It says the Minister may grant relief, which means the decision belongs, in the first instance, to the Minister and the Agency officials who exercise that authority on the Minister's behalf.
That allocation of authority shapes the only question a reviewing court can properly ask. A denial of relief is not appealed to the Tax Court of Canada the way an assessment is. Instead, it is challenged by way of judicial review in the Federal Court under the Federal Courts Act. And on judicial review, the court is not asked whether it would have granted relief. It is asked whether the Minister's decision was lawful. The precise issue in Telfer was therefore what standard the reviewing court should apply to the Minister's refusal, and whether the applications judge had in fact applied it.
What the Court decided (and why)
Writing for a unanimous Court, Justice Evans allowed the CRA's appeal, set aside the Federal Court's order, and dismissed Ms. Telfer's application for judicial review. The Minister's refusal to waive the interest was reinstated.
The reasoning turned on the standard of review. The Court confirmed that a discretionary decision of the Minister under subsection 220(3.1) is reviewed on a standard of reasonableness, applying the framework the Supreme Court of Canada had recently set out in Dunsmuir v. New Brunswick, 2008 SCC 9. Reasonableness review is deferential. It asks whether the decision is justified, transparent, and intelligible, and whether the outcome falls within a range of acceptable possibilities defensible on the facts and the law. It does not ask whether the reviewing judge would have reached the same conclusion.
The problem the Court of Appeal identified was that the applications judge had said the right words but done the wrong thing. He had correctly named reasonableness as the standard, but an examination of his reasons showed that he had not actually deferred to the Minister. Instead, he had weighed the facts himself, decided that denying relief was unfair given the delay, and substituted his own view of fairness for the Minister's. That, the Court of Appeal held, is precisely what reasonableness review forbids. A reviewing court may set aside a discretionary decision that is unreasonable; it may not set aside a reasonable decision simply because it would have exercised the discretion differently.
On the facts, the Court of Appeal found that the Minister's refusal was reasonable. The relevant circumstances, including the delay and Ms. Telfer's financial position, had been documented and considered by the decision-maker. Weighing those circumstances and deciding how much weight to give the delay was the very essence of the discretion that subsection 220(3.1) confers on the Minister. Because the refusal was supported by a rational chain of reasoning and fell within the range of defensible outcomes, it was reasonable, and a reasonable decision must stand even if a judge might sympathise with the taxpayer.
Why this decision matters / practical takeaways
Telfer did not invent the law it applied, but it states the governing principle with unusual clarity, and that principle drives how every relief file should be approached. The practical lessons are concrete:
- Two different forums, two different jobs. An assessment is disputed in the Tax Court of Canada, where a judge decides the tax owing afresh. A denied relief request is challenged by judicial review in the Federal Court, where the judge only reviews the Minister's decision. Confusing the two is one of the most common and costly errors taxpayers make.
- The court will not re-weigh the facts. The lesson of Telfer is that a reviewing judge cannot grant relief merely because the outcome seems unfair. The decision is the Minister's to make, and it survives review so long as it is reasonable. This is why a judicial review is rarely a second chance to argue the merits from scratch.
- The real battle is won at the relief-request stage. Because the Federal Court reviews the record that was before the decision-maker, the time to make the strongest possible case is in the relief application itself and on the second-level review, not afterward. Facts, documents, and arguments that are not squarely put to the Agency may simply not be available to rescue the file later.
- Put every ground squarely on the record. The Court of Appeal noted that the specific argument pressed on review had not been clearly placed before the decision-maker. A reasonableness review tests the decision the Minister actually made on the case actually presented; a ground raised for the first time in court is on weak footing.
- Reasonableness is a high bar to clear, but not an impossible one. A relief decision can be set aside where the Minister ignored relevant considerations, relied on irrelevant ones, fettered the discretion by treating guidelines as binding rules, or gave reasons that do not hold together. The taxpayer's task is to identify a genuine flaw of that kind, not to re-argue fairness.
For the broader procedural picture of how disputes move through the system, our guides on the Tax Court of Canada appeal process and on evidence and the burden of proof explain how the assessment side of a file is run, which often unfolds in parallel with a relief request.
How Barrett Tax Law approaches taxpayer relief files
Because a court will generally not re-weigh the facts on judicial review, the decisive work on a relief file happens early. Working alongside taxpayers on taxpayer relief applications, our approach is to treat the request to the CRA as the main event rather than a formality. That means building a complete, documented record at the relief-request stage: setting out each ground for relief, supporting it with evidence, and ensuring that every argument the taxpayer may later need is squarely before the decision-maker.
From there, the focus is on the quality of the record and the reasoning. Where a relief request is denied, we assess whether the decision is genuinely vulnerable on a reasonableness standard, whether a relevant consideration was overlooked, an irrelevant one relied upon, the discretion improperly fettered, or the reasons internally inconsistent, before advising on a judicial review in the Federal Court. Relief requests rarely travel alone, so we also coordinate this work with the underlying dispute, whether that involves audit representation, an appeal to the Tax Court, or a voluntary disclosure where unfiled or inaccurate returns are part of the picture. If you are facing accumulated interest or penalties you believe should be relieved, a free consultation is a sensible first step to understand your options.
This article is commentary on a public court decision and is provided for general information only. It is not legal advice, does not create a lawyer-client relationship, and outcomes always depend on the specific facts of each case. For the full reasons, see Telfer v. Canada (Revenue Agency), 2009 FCA 23 (CanLII).
Frequently asked questions
What is a taxpayer relief application?
It is a request asking the Minister of National Revenue, through the CRA, to waive or cancel penalties and interest under subsection 220(3.1) of the Income Tax Act. Relief is commonly sought where the amounts arose because of circumstances beyond the taxpayer's control, actions of the CRA such as processing delays, or an inability to pay or financial hardship. The provision gives the Minister a discretion; it does not require relief whenever a delay or hardship exists.
How do you challenge a denied taxpayer relief request?
A relief denial is not appealed to the Tax Court of Canada like an assessment. Instead, after exhausting the CRA's administrative review levels, the taxpayer applies for judicial review in the Federal Court under the Federal Courts Act. The court reviews whether the Minister's decision was lawful and reasonable; it does not re-decide whether relief should be granted.
What standard of review applies to the CRA's discretionary relief decisions?
Reasonableness. As the Federal Court of Appeal confirmed in Telfer v. Canada (Revenue Agency), 2009 FCA 23, a discretionary decision under subsection 220(3.1) is reviewed deferentially. The court asks whether the decision is justified, transparent, intelligible, and within a range of defensible outcomes, not whether the judge would have decided the same way. The current framework for reasonableness review is set out in the Supreme Court's later decision in Vavilov, 2019 SCC 65.
Why did the taxpayer ultimately lose in Telfer?
The Federal Court judge had set aside the Minister's refusal, but the Court of Appeal held that he had substituted his own view of fairness for the Minister's rather than applying genuine reasonableness review. Because the Minister had considered the relevant circumstances, including the delay, and the refusal fell within the range of defensible outcomes, the decision was reasonable and had to stand. The appeal was allowed and the relief denial reinstated.
Can a court grant relief just because a CRA decision seems unfair?
No. That is the central lesson of Telfer. On judicial review, the decision to grant or refuse relief belongs to the Minister, and the court can only intervene if that decision is unreasonable, for example because a relevant factor was ignored, an irrelevant one was relied upon, the discretion was improperly fettered, or the reasons do not hold together. A reasonable decision survives review even if a judge might have shown more leniency.
When is the right time to make the case for relief?
At the relief-request stage with the CRA, and on the second-level administrative review, not afterward. Because a reviewing court generally looks only at the record that was before the decision-maker, every ground and supporting document should be squarely placed before the Agency from the outset. Arguments raised for the first time on judicial review are on weak footing, so the strongest, fully documented request is what most often changes the outcome.