Sherring v Canada: FC Upholds CRA Penalty Relief Denial

• The Federal Court dismissed a 71-year-old taxpayer's judicial review application in Sherring v. Canada, upholding the CRA's decision to refuse relief from interest and penalties.
• The taxpayer requested section 220(3.1) relief for multiple tax years citing medical problems, emotional distress, financial hardship, and a 2019 leg fracture.
• The court found the CRA's decision-maker articulated a rational conclusion based on the evidence, rendering the decision reasonable under administrative law standards.
• Although the review was dismissed, the court refused to award costs to the Crown and suggested the taxpayer negotiate a realistic payment plan with the CRA.
• The decision highlights that personal hardship will not overturn a reasonable discretionary decision on judicial review.

When discretionary relief applications are denied, legal counsel should pivot toward negotiating a structured CRA payment arrangement based on the client's current cash flow rather than expending resources on judicial review challenges that face high deference thresholds.

In Sherring v Canada 2026 FC 1064, the Federal Court dismissed a judicial review application brought by a senior taxpayer seeking relief from accrued interest and penalties assessed by the tax authority. The applicant sought to overturn the Canada Revenue Agency's (CRA) decision refusing to waive her accrued liabilities under section 220(3.1) Income Tax Act provisions. Although the court acknowledged the taxpayer's ongoing medical, physical, and financial difficulties, it determined that the administrative delegate had operated within the permissible limits of discretionary decision-making.

The court found that the agency's reviewer systematically reviewed the evidence, addressed the applicant's key arguments, and outlined a rational chain of reasoning. Because the CRA's determination met the standard of reasonableness, the Federal Court declined to intervene, though it pointed out that the taxpayer remains in a position to negotiate an manageable payment schedule with tax authorities directly.

The applicant, a 71-year-old English language instructor residing in Saskatchewan, accrued significant tax debt after failing to submit her personal tax returns on time for the 2011 through 2016 taxation years. In 2018, the CRA issued formal assessment notices containing late-filing penalties alongside arrears interest for those periods. Following her late filing of returns for the 2013 to 2016 tax years, the CRA issued revised assessments. The taxpayer subsequently filed her 2017 and 2019 tax returns after the deadline, prompting additional notices of assessment carrying interest and penalties.

In April 2022, the applicant filed a request for CRA tax interest and penalty relief under section 220(3.1) of the Income Tax Act for the 2006 to 2021 tax years, citing severe financial distress, medical issues, and the impact of the COVID-19 pandemic. The CRA rejected the request upon initial review. The taxpayer then sought a second review for the 2011 to 2021 tax years, highlighting her continuous financial hardship, illness, mental and emotional distress, and a leg fracture suffered in 2019. On October 25, 2023, the agency issued its second-level decision formally refusing relief.

The applicant turned to the Federal Court for judicial review, arguing that the CRA delegate misunderstood her true financial state and neglected to account for her age, physical limitations, and diminished capacity to continue working. Following its evaluation, the Federal Court ruled that there was no basis to conclude the CRA had acted unreasonably. The court observed that the decision-maker evaluated all submissions and produced a logical decision that reflected the statutory discretion available under the law.

While upholding the CRA's refusal, the court recognized the significant personal, financial, and health hardships the applicant endured. Exercising its discretion on litigation costs, the court denied the government's request for costs and ordered each party to bear their own expenses. The judge noted that while the threshold for judicial review was not met, the taxpayer's situation presented a strong case for negotiating a tailored payment plan with the CRA based on her current financial capabilities.

For legal professionals handling Sherring v Canada CRA penalty relief matters, the judgment provides a clear reminder regarding the limits of administrative review. Tax practitioners should note that personal or financial hardship alone will not overturn a CRA discretionary decision under s. 220(3.1) on judicial review if the decision-maker articulated a rational chain of reasoning. When discretionary relief applications are denied, legal counsel should pivot toward negotiating a structured CRA payment arrangement based on the client's current cash flow rather than expending resources on judicial review challenges that face high deference thresholds.

This decision sits alongside several recent Federal Court rulings regarding CRA discretionary decisions. The court recently declined a timeline extension for a judicial review regarding TFSA tax cancellation for 2020–2021. Conversely, upon consent of the parties, the court set aside a delegate's refusal of interest relief for LG Electronics Canada, Inc. under section 220(3.1). Additionally, the court granted judicial review applications for immigrants from India seeking relief from interest and penalties stemming from late T1135 foreign income verification statements.

Tax practitioners should note that personal or financial hardship alone will not overturn a CRA discretionary decision under s. 220(3.1) on judicial review if the decision-maker articulated a rational chain of reasoning. When relief applications are denied, counsel should pivot toward negotiating a structured CRA payment arrangement based on current cash flow rather than incurring costs on judicial review.

Source: Original reporting via Law360 Canada