A recent Federal Court decision, David Jacob Rotfleisch v. Attorney General of Canada, 2025 FC 1529, reminds taxpayers that a lengthy delay by the Canada Revenue Agency (CRA) in resolving an objection, especially when a test case is pending, is not automatically considered an “undue delay” warranting interest relief. The Court dismissed Mr. Rotfleisch’s application for judicial review, finding that the CRA’s decision to deny further interest relief was not unreasonable and not procedurally unfair.
Overview of the objection
Mr. Rotfleisch, a practicing tax lawyer and chartered professional accountant for 40 years, sought judicial review of a CRA decision denying him relief from interest accrued for his 2000 tax year.
In 2000, Mr. Rotfleisch claimed a $75,000 charitable donation to Ideas Canada Foundation (Ideas), which was part of a complex leveraged donation program. His actual cash outlay was only $15,000, with the remainder coming from a 25-year interest-free loan. The CRA disallowed 80% of his donation credit claim ($60,000) in 2004 and issued a notice of reassessment on June 18, 2004, stating the amount owing.
Mr. Rotfleisch filed a Notice of Objection on November 29, 2004. The CRA advised him on December 15, 2004, that the objection would be held in abeyance pending the outcome of a test case involving a similar leveraged donation to Ideas, Kossow v The Queen, 2012 TCC 325.
The CRA’s December 2004 letter also explicitly stated that interest would continue to accumulate on his unpaid balance, a fact that the Department of Justice alleged, and the Federal Court judge agreed, that Mr. Rotfleisch would have known as an experienced tax lawyer. Mr. Rotfleisch had the option to pay the balance to halt the accumulation of interest while maintaining his objection to the CRA.
The Kossow litigation was lengthy. The Tax Court of Canada (TCC) dismissed the appeal in September 2012, the Federal Court of Appeal (FCA) dismissed a subsequent appeal in December 2013, and the Supreme Court of Canada (SCC) dismissed the application for leave to appeal in May 2014.
Subsequent to the conclusion of the Kossow case, the CRA issued a Notice of Confirmation to Mr. Rotfleisch in November 2014, confirming the denial of $60,000 of the claimed donation.
Request for relief of accrued interest arrears denied
In December 2014, Mr. Rotfleisch requested relief from arrears interest, asserting that the CRA’s decision to hold his objection in abeyance for nearly a decade was an undue delay. While the relief request was still pending, he paid the outstanding balance of $34,191.80 in January 2015.
The CRA granted only partial relief for the period between the Federal Court of Appeal’s decision on December 6, 2013, and the CRA’s Notice of Confirmation on November 7, 2014. The CRA denied relief for the remaining periods, concluding that the period of abeyance pending the Kossow case was not an undue delay.
The CRA’s reasons for its denial of the majority of the interest relief were that:
- First, the decade it took for the final resolution of the Kossow matter was lengthy, but not undue, given the complexity of the donation programs, the issues at hand, and the normal court process and timelines. The CRA explained that Mr. Rotfleisch’s file could not be worked on by the Appeals division while waiting for the outcome of the leading Kossow case.
- Second, the accumulation of arrears interest was considered squarely within Mr. Rotfleisch’s control. He was informed of the amount owing in 2004 and was advised that interest would continue to accrue. The CRA said that Mr. Rotfleisch made a conscious choice to wait for the outcome of Kossow case before paying his outstanding balance, and nothing prevented him from paying the balance while the objection was held in abeyance. Mr. Rotfleisch argued that it was reasonable for him to wait for the outcome of the Kossow case because, in his opinion, the taxpayer in the Kossow case, similar to himself, should be entitled to the donation credit claimed.
The CRA also noted that “one cannot expect to gain a financial advantage in excess of the donation amount in the first place” and that Mr. Rotfleisch “should not expect to profit from a charitable donation”. Mr. Rotfleisch alleged that these statements were an attack on his character and were evidence of bias against him.
The Federal Court sided with the CRA
The Federal Court dismissed Mr. Rotfleisch’s application on both alleged grounds of unreasonableness and procedural bias.
- First, the Federal Court found that the CRA’s decision met the standard of reasonableness, meaning it was “based on an internally coherent and rational chain of analysis and is justified in relation to the facts and law bearing upon it”. The court agreed with the CRA that the abeyance pending a test case was not an unjustified or unwarranted delay. It noted that Federal Courts have previously rejected “undue delay” arguments in similar circumstances where the CRA held objections in abeyance.
The CRA’s reasons demonstrated a clear consideration of the relevant factors in the CRA’s Taxpayer Relief Provisions Information Circular, including the taxpayer knowingly allowing a balance to exist on which arrears accrued and not acting quickly to remedy any delay.
- Second, the Federal Court found the allegation of bias against the CRA’s comments about Mr. Rotfleisch expecting to profit from a charitable donation to be unjustifiable. In the court’s opinion, these statements were a reflection on the test case (the Kossow case) regarding the underlying leveraged donation scheme (the Ideas scheme), not an attack on the taxpayer’s character or evidence of bias.
Pro Tax Tip – Pay the balance of taxes owing to avoid accrued interest
This case underscores an important principle for taxpayers: appealing a reassessment does not stop the accumulation of interest on the amount owing.
When the CRA holds an objection in abeyance pending a test case, the time taken for that case to resolve is generally not considered undue delay by the CRA or the courts.
The responsibility to stop the accrual of interest remains with the taxpayer, who can always, and should, pay the outstanding balance while continuing to pursue their objection or appeal. This action prevents interest from accumulating, and the payment is refunded if the objection or appeal is ultimately successful.
Therefore, taxpayers should consult with an experienced Canadian tax lawyer to consider their options regarding payment and to understand the risks of allowing interest to accrue during lengthy litigation periods.
FAQ
The CRA reassessed me and determined that I now owe tax. What should I do?
If you believe that the reassessment is unreasonable, you should file a notice of objection with the CRA. However, filing an objection does not stop the alleged tax owing from accumulating interest. Therefore, you should pay the alleged tax owing as early as you can to stop interest accrual. You should consult with an experienced Canadian tax lawyer when filing an objection.
My objection is being held in abeyance by the CRA, pending the resolution of a test case. Can I hold the CRA accountable for the time my objection is pending?
Unfortunately, when the CRA holds an objection in abeyance pending a test case, the time taken for that case to resolve, even if lengthy, is generally not considered undue delay by the CRA or the courts. You should consult with an experienced Canadian tax lawyer when considering your best course of action.
DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.