Suppose you didn’t file tax returns because you had no tax payable and, at the time, the Tax Court had said there was no penalty for a non-resident not filing returns if it had no tax payable. Later, though, in another case, the FCA over-turned the Tax Court views, saying a different penalty rule still applied. So, CRA assessed you a failure to file penalty. If you apply for penalty relief on the basis that you had complied with the law as it was understood at the time, may CRA simply say, “The FCA has said the penalty applies and penalties will only be waived for circumstances beyond the taxpayer’s control”? (Paras. 7 & 12)? No.
In denying interest or penalty relief, the reasons CRA gives must correspond in some way to the argument the taxpayer advances for the relief. (Para. 21.)
“The applicant does not deny that a penalty is payable for the year or that the Federal Court of Appeal decided the question. It raises, rather, the question of whether it should not benefit by relief because two decisions of the Tax Court of Canada were opposed on the question of the application of subsection 162(2.1) and that the Federal Court of Appeal decided that this subsection did not apply but that subsection 162(7) applied instead.” (Para. 20, my translation.)
The FC judge said that CRA had failed to deal with this question at all. So the reasons were deficient and CRA must reconsider its decision. Keep in mind, though, that with most judicial review applications, the Court’s decision does not force CRA to grant relief; it simply tells CRA to reconsider and confront the taxpayer’s question.
See Cogesco Services Limited c. Canada (2013 CF Roy)