Practice National Taxation

Should a Canadian taxpayer seek judicial review?

The Canada Revenue Agency must provide reasons to taxpayers for their decisions, says the Federal Court of Canada

Author: David J. Rotfleisch
David Rotfleisch, CPA, JD
Sangha v Canada (A.G.) affirms the law that certain administrative decisions require the decision maker to give reasons for its decision, explains David J. Rotfleisch, CA, CPA, JD, of Rotfleisch & Samulovitch P.C.

Introduction to Sangha v Canada (A.G.)

A Tax Free Savings Account (TFSA) is an investment account that allows any income earned or contributed to the account to be tax-free. However, TFSAs have strict rules that can result in significant penalties if not followed. In particular, Section 207.02 of the Income Tax Act (ITA) states that if an individual makes excess contribution to their specified TFSA limit amount, then they are subject to 1% monthly taxes on the excess amounts.

When there is an excess contribution to a TFSA, then the Canada Revenue Agency may issue TFSA tax assessments, which could result in a CRA tax debt. One way to obtain CRA tax debt forgiveness is through a taxpayer relief application. Section 207.06(1) of the ITA states that the CRA may exercise its discretion to provide relief if a taxpayer establishes that the excess contribution liability arose as a consequence of a reasonable error and that the excess amounts were removed from the TFSA without delay. A recent Federal Court case shows that taxpayers should consider seeking judicial review when they believe that the CRA refused their request for taxpayer relief of CRA tax debt in an unreasonable manner.

In the recent Federal Court case Sangha v. Canada (Attorney General), Mr. Dalvir Sangha, the taxpayer, made an application for judicial review to the Federal Court. The Court reviewed the CRA's refusal to cancel tax imposed for the 2017 and 2018 taxation years on excess contribution in his TFSA. As a result, The Court ordered the CRA to reconsider Mr. Sangha's request to cancel the excess contribution tax by another delegate of the CRA.


In 2016, Mr. Sangha contributed $81,000 to his TFSA. Consequently, he incurred an excess contribution penalty from December 31, 2016, because his TFSA contribution room for 2016 was $44,592. In March 2017, Mr. Sangha deposited an additional $10,000 to his TFSA. In April 2017 however, he withdrew the entire balance of his TFSA. In June 2017, Mr. Sangha received a letter ("June 2017 Letter") from the CRA regarding his excess contribution to his TFSA in 2016. This letter indicated that if he were to make excess contributions in the future, he would be subject to 1% tax of the highest such amount for each month pursuant to section 207.02 of the ITA.

In September 2017, Mr. Sangha contributed $35,000 to his TFSA, which resulted in an excess contribution amount of $35,000 from December 31, 2017. The contribution remained until August 2018, in which he withdrew the excess amount. Consequently, the CRA issued TFSA tax assessments for 2017 and 2018 tax years, detailing the excess TFSA amounts and the calculation of the tax, interest and penalties imposed against the excess amounts.

On April 2019, Mr. Sangha filed a request to waive the tax, interest and penalties associated to the excess amounts. The CRA refused this first waiver request on the basis that he made excess TFSA contributions in September 2017 despite receiving the June 2017 Letter.

Mr. Sangha sent a second request to waive the tax, interest and penalties associated to the excess amounts. He emphasized that he removed all the funds in his TFSA prior to receiving the June 2017 Letter. He also stated that he relied on the wording of the letter. In particular, he relied on the reference to the fact that "future contributions" could result in excess amounts tax. He submitted that the CRA should exercise the discretion to waive the excess contribution tax pursuant to subsection 207.06(1) of the ITA. However, this second request was also refused by the CRA, and it was expressed in a letter ("Decision"). The CRA concluded that Mr. Sangha continued to make contributions even after when he was notified of his excess contributions by the June 2017 Letter.

Mr. Sangha's Position

Mr. Sangha's tax lawyer applied to the Federal Court for a judicial review of the refusal by the CRA to cancel the TFSA excess contributions tax. He submitted that the CRA unreasonably ignored the June 2017 Letter. Mr. Sangha relied on the following two statements in the letter: (1) the taxpayer should withdraw any excess contributions to his TFSA, and (2) if the taxpayer continues to contribute over the limit amount, then a 1% tax will be charged for each month. Second, Mr. Sangha submitted that the September 2017 excess contribution was an honest misunderstanding of the law. He did not fully understand that he was required to wait until the next year to make additional contributions.

The CRA's Position

The Canadian tax lawyer representing the CRA stated that their refusal was based on coherent and justified reasons in light of the circumstances. The CRA had warned Mr. Sangha about the consequences of excess contributions. Yet, he repeatedly over-contributed to his TFSA, and allowed some excess amounts to remain until August 2018.

The Federal Court's Analysis

The issue before the Court was not whether the underlying CRA assessments, including the calculations establishing the excess contributions, were correct. The sole issue was whether the refusal by the CRA to allow Mr. Sangha's request was reasonable.

The Federal Court granted the application for judicial review in favour of Mr. Sangha, and held that his second request for a waiver must be returned for reconsideration to the CRA. In the Court's view, the CRA did not adequately justify their refusal to waive the tax imposed on Mr. Sangha. The Court agreed with the majority decision in the recent Vavilov case from the Supreme Court of Canada, specifically that the focus of reasonableness review must be on the decision made by the decision maker, the reasoning process that lead to its decision, and its outcome. The Federal Court determined that the CRA failed to address three important material issues.

The first issue was related to a determinative error. The Court stated that CRA did not consider Mr. Sangha's submission concerning the effect of June 2017 Letter and his actions to withdraw all amounts from his TFSA prior to the receipt of the letter. The CRA also failed to make a distinction between Mr. Sangha's excess contributions and the withdrawal before the June 2017 Letter and the subsequent September 2017 contribution. Also, the CRA made no discussion about the possible future imposition of TFSA tax that was described in the June 2017 Letter. In the Court's view, these omissions compromised the CRA's position that the Decision was coherent and justified.

The second issue was that the CRA failed to provide sufficient explanation for rejecting Mr. Sangha's submission regarding reasonable taxpayer error. The Court stated that the CRA did not indicate in the Decision that they relied on the factors set out in the CRA manual to assess Mr. Sangha's circumstances and submissions.

The final issue was that the CRA made no reference to the two conditions necessary to a waiver of the TFSA tax, which are detailed in subsection 207.06(1) of the ITA. The Court held that the Decision must state the CRA's reason for refusal so that the taxpayer is able to understand the effect of the evidence in the record on the outcome of the case.

Sangha v Canada (A.G.) affirms the law that certain administrative decisions require the decision maker to give reasons for its decision. It also affirms the constitutional role of judicial review which is to ensure that exercises of state power are subject to the rule of law. Taxpayers should consider seeking judicial review if they believe that the CRA refused their request to cancel their TFSA excess contribution tax and resulting CRA tax debt in an unreasonable manner.

David J. Rotfleisch, CA, CPA, JD is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm and is a Certified Specialist in Taxation Law. 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, 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 litigation. Visit and email David at

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