Practice National Taxation

The reasonability requirement for administrative suspension of EFILE rights

Canadian tax lawyer and accountant David J Rotfleisch on Virgen v Canada (Attorney General), a Federal Court decision in favour of an Ontario tax preparer

Author: David J. Rotfleisch
David Rotfleisch, CPA, JD
David J Rotfleisch, CPA, JD is the founding tax lawyer of and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm.

TAX authorities are constantly developing measures aimed at easing the process of payment of taxes, to ensure that more taxpayers are able to comply with tax laws, facing little or no challenges. This has led to the proliferation of measures by tax authorities globally, to simplify and automate tax payment and filing. Technology is seen to be driving revenue generation for government and reducing the cost of compliance and enforcement on the taxpayer and the tax authorities respectively.

The development of E-filing around the globe forms not only a compliance easing tool, but also constitutes measures to ensure that tax evasion in Canada is reduced and becomes totally unjustifiable. Interestingly, E-filing measures capture all the necessary procedure involved, from the filing to assessment and even administrative processes.

The Canadian Revenue Authority (CRA) is not left out of the global 'buzz' by tax authorities in integrating automated processes into tax administration and enforcement. The CRA launched the electronic filing (EFILE) system as part of the adoption of the above trend. [Editor's note: EFILE became a national program in 1993.] The EFILE is an automated service which creates a platform for tax preparation service providers and discounters to send the income tax return information of individuals to the CRA directly from EFILE-certified tax preparation software. This aids the representative system where representatives offer services to taxpayers, by acting as intermediaries between the taxpayers and the tax authorities. Hence, filing of tax returns for the individuals being serviced can be done by the tax preparation service providers and discounters using the EFILE. Taxpayers simply take their tax slips and other relevant supporting documents to a registered tax preparer and pay the professional, who then prepares their returns and sends it to the CRA using the EFILE.

As simplified and easily described as this process might appear, the complications and legal issues which usually arises from the EFILE use requires attention and clarification, particular as regards the compliance by tax preparers with the criteria set by the Minister of National Revenue (the Minister) under section 150.1(2) of the Income Tax Act (ITA). These legal issues have formed the bone of contention in various disputes, but this article will focus on Virgen v Canada (Attorney General) [2022], where the Federal Court of Canada was faced with a claim involving the suspension of EFILE rights and privileges for violation of 'Criterion 13' of the Minister's criteria for acts related to "having engaged in fraud, dishonesty, breach of trust, or other conduct of a disreputable nature."

To what extent does the tax authority reserve the right to suspend a taxpayer's participation in the CRA's electronic filing (EFILE) system?

The applicant, Maribel Acevedo Virgen, was a participant in the EFILE system who was initially assigned EFILE account number Q9080. The CRA owed a duty under the system to conduct monitoring processes which are targeted at ensuring that participants are fully compliant with the conditions of the program. In this routine monitoring process, the CRA can request that participants provide the copies of various relevant documents, especially the document identified as the T183 form used by participants when filing a tax return on behalf of another person.

The CRA had initiated a review of the applicant's electronic filing practices by a letter dated May 6, 2021. In the letter it was stated that the CRA was reviewing her completed T183 forms for the 2019 taxation year and the Agency asked her to furnish them with copies of such forms for each individual whose name appeared on an attached list, all on whose behalf who she had filed tax returns. The CRA later informed the applicant on October 27, 2021, that her EFILE privileges were suspended since she has been previously advised to stop filing on behalf of certain category of taxpayers excluded from electronic filing, to which she continued. The excluded taxpayers referred to here are:

  1. Foreign workers employed in Canada under the Seasonal Agricultural Workers Program (SWAP) who are non-residents or deemed non-residents; and
  2. Taxpayers who are deemed residents (not subject to provincial or territorial tax).

The applicant's further initiation of an administrative review proved abortive as the suspension was confirmed by CRA on the basis that the applicant was aware of the list of exclusions but continued to file electronic returns for these taxpayers. The applicant's further application for judicial review of the CRA's decision was successful. However, the Court was not in doubt as to whether the right of an EFILE participant could be suspended.

The relevant provision which was brought to the Court's attention was section 150.1(2) of the ITA which provides that the written criteria by the Minister, as contained on the CRA website, constitute the requirements to be met for eligibility to file a return of income for a taxation year by way of electronic filing. In Paterson v Canada (Revenue Agency), 2010 FC 644, Justice Martineau noted that "the Minister has full discretion to grant, or revoke, the privilege of electronic filing. Relevant factors governing the exercise of the ministerial discretion are listed in the "Suitability screening" form posted on the CRA's website." 

This showed that the stated criteria such as Criterion 13 must be adhered to in electronic filing and non-compliance could be a justification for the tax authorities to suspend EFILE rights. Whether the tax authority or the Minister could suspend the said privileges was however not the bone of contention. The reasonability of the decision to suspend became "the stallion that received the most horse whips" in the case.

The administrative decision to suspend the rights and privileges of a taxpayer under the EFILE system must be reasonable

In this case, the applicant claimed that: (i) the decision of the CRA appeared to rely on administrative Criterion 13 to the effect that a person who has engaged in fraud, dishonesty, breach of trust or other disreputable conduct, cannot participate in the EFILE program; (ii) the CRA did not clearly show how Criterion 13 related to the reasoning underlying the decision. Contrarily, the CRA argued that the decision was not given in reliance on Criterion 13 but relied on the legal content derived from the list of excluded taxpayers which was published on CRA's website. The Court held the decision unreasonable.

The review of the reasonability of a decision as held in Canada (Minister of Citizenship and Immigration) v Vavilov (2019 SCC 65 at para 15), implies "identifying an internally consistent and rational chain of analysis that is justified in relation to both the facts and the law that constrains the decision-maker." The Court must identify the intelligibility, justifiability and transparency of the decision. This standard is necessary to ensure that arbitrary decisions are not taken, because such decisions eliminate the principle of fairness which is essential for a good and equitable tax system. The Court noted that 'intelligibility and transparency' were lacking in the decision of the Minister.

The intelligibility and transparency of the decision implies that there should at least be certainty as to the applicable criteria in arriving at the decision and how such a criterion became the underlying reason for the decision. These standards were also required in Paterson v Canada (Revenue Agency) as a means of checking the discretion clothed on the CRA. The CRA can largely be blamed for the difficulty in identifying the intelligibility and transparency of the decision. The decision letter produced by the CRA did not mention that Criterion 13 was used, but primarily based the decision on list of 'Excluded Taxpayers' as published on the website of the CRA, titled 'suitability screening' as having the legal effect envisaged by section 150(1)(2) of the ITA.

Could Criterion 13 have been regarded as only ancillary to the reasoning underlying the decision? And can non-communication of an ancillary ground result in the unreasonableness of a decision?

The miscommunication of the grounds of the decision is an issue which was contentious in Virgen. However, Virgen could neither be allowed to feign ignorance as to the existence of the excluded list, as she had been advised with respect to that, nor could she be permitted to argue that seasonal agricultural workers who normally reside in Mexico were not either non-residents or deemed non-residents who fall within the categories of excluded taxpayers, regardless of the number of days these seasonal workers from a treaty country has been in Canada.

The lack of communication of Criterion 13 was an issue, but the Court was of the opinion that the CRA had turned their mind to Criterion 13 when making the decision. It was evident that the record leading to the Minister's decision clearly indicated a reliance on Criterion 13. When the references to Criterion 13 in the Report before the Court was mentioned, the CRA argued that the said reference only related to the manner in which Virgen was able to perform the impugned electronic filings, that is through the "care of" options in the EFILE program. The Canadian litigation tax lawyer acting for CRA claim that, during the administrative review, Virgen could have raised the question of whether the published list of exclusions came under the criteria of the section 150.1(2) of the ITA was dismissed, because the Court was of the view that the decision should have addressed that point to benefit both the Court and the parties during the judicial review.

Moreover, that the claim that Criterion 13 was ancillary would not have negated its use in determining the reasonableness. According to the Court in Saber & Sone Group v Canada (National Revenue) 2014 FC 1119, an administrative decision can be regarded as informing the reasons for the decision when the decision itself contains no reasons or brief reasons. This was reiterated in Sketchley v Canada (Attorney General), 2005 FCA 404 at paras 37-38. Notably, the 5-years suspension from the use of the EFILE system was referenced from Criterion 13. Hence, the uncertainty as to the use of Criterion 13 and the lack of details to show how that criterion applied meant that the decision was unreasonable.

The result of the decision in Virgen v Canada (Attorney General) on the suspension of EFILE rights

The decision in Paterson v Canada (Revenue Agency) had long set the tone for strict scrutiny of administrative decisions suspending EFILE rights. However, the decision in Virgen seems to only require that the justification for the administrative decision must be clearly given. Communication of the justification for a suspension of EFILE rights has been reiterated as a minimum requirement for upholding the decision in a judicial review. Thus, the Court in this case held in favour of Virgen and upheld the argument that the EFILE rights of Virgen was unreasonably suspended. This decision eliminates any form of arbitrariness in tax administration and equally protects against the use of the EFILE system to perpetuate any form of tax fraud.

David J Rotfleisch, CPA, JD is the founding tax lawyer of and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm and is a Certified Specialist in Taxation Law who has completed the CICA in-depth tax planning course. He appears regularly in print, radio and TV and blogs extensively.  

With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, cryptocurrency traders, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax audit representation and tax litigation. Visit and email David at

Read the original article on Title image: iStock. Author photo courtesy Rotfleisch & Samulovitch P.C. 

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