Denso – FCA dismisses judicial review application of Minister’s refusal to accept late-filed GST/HST election

Published by Rebecca Loo

Under the Excise Tax Act (the “Act”), the Minister of National Revenue (“Minister”) and her delegates are granted discretion to make administrative decisions affecting taxpayers on a case-by-case basis, including powers to extend deadlines or waive compliance with certain requirements under the Act.  However, while the Tax Court of Canada has exclusive jurisdiction over appeals from tax assessments, it is not able to hear taxpayer appeals from decisions involving the exercise of the Minister’s discretion on administrative matters.

Challenges to the Minister’s administrative decisions must be brought by way of a judicial review application in the Federal Court.  Judicial review is an important tool for taxpayers, as it allows them to challenge unreasonable decisions by the Minister.  For more information on the legal framework that courts must follow on judicial review applications, please refer to our prior blog post.

The recent case of Denso Manufacturing Canada, Inc. v. Canada (National Revenue), 2021 FCA 236, involved a request by two related taxpayers to late-file an election under section 156 of the Act.  The request, if accepted, would have allowed the taxpayers to avoid over $1 million in interest.   The Minister denied the late-filing request and, on judicial review, the Federal Court and the Federal Court of Appeal both upheld the Minister’s decision.

Statutory Provisions

Section 156 of the Act allows closely related corporations that are engaged exclusively in commercial activities to enter into an election to treat supplies made between them as being for nil consideration – often referred to as the “nil consideration” election.  This avoids the need for GST/HST to be charged on intercorporate supplies.  As this GST/HST would otherwise be fully recoverable by the recipient as an input tax credit (“ITC”), the section 156 election is generally used for administrative efficiency and cashflow reasons.

Prior to 2015, the section 156 election was made by completing a GST25 form which was not required to be filed with the Minister.  Section 156 of the Act was amended in 2014.  As a result, effective January 1, 2015 a new prescribed election form (RC4616) needs to be completed and filed with the Minister in order to benefit from the section 156 election.  Administratively, the Minister allowed companies that were party to an existing election in effect before January 1, 2015 to file the new election form prior to January 1, 2016 to benefit from the section 156 election for the 2015 year.


Denso Manufacturing Canada, Inc. (“Denso Manufacturing”) and Denso Sales Canada, Inc. (“Denso Sales”, and together, the “Denso Companies”) were closely related corporations which made the nil consideration election in April 2007 by completing a GST25.  The Denso Companies assumed the election remained valid and operational at all times, and conducted themselves accordingly (including by not charging or remitting GST/HST on the intercompany supplies). However, following the above-mentioned legislative amendments, they did not file a new election form with the Minister by the December 31, 2015 deadline.

In January 2016, Denso Manufacturing’s GST/HST returns were selected for review by the CRA.  As part of the review, Denso Manufacturing indicated that there was a form GST25 in place in respect of its intercorporate supplies with Denso Sales.  On February 11, 2016, a CRA officer asked Denso Manufacturing to file a form RC4616 to be in compliance with section 156 of the Act.

Denso Manufacturing subsequently sought advice from its tax consultants regarding the new election form.  Its consultants indicated that it could not find any publication from the CRA regarding the consequences of missing the December 31, 2015 deadline.  The consultants concluded that Denso Manufacturing’s only exposure would be with respect to the net tax payable for the month of January 2016, if a new election form was not filed before the end of February 2016.  Therefore, on February 22, 2016, Denso Manufacturing faxed a form RC4616 to the CRA indicating that the election was effective from January 1, 2016.  The CRA concluded its review without any proposed adjustments.

In June 2017, the CRA began another GST/HST audit of Denso Manufacturing.  This led to Denso Manufacturing submitting another form RC4616 on November 7, 2017 specifying an effective election date of January 1, 2015, and requesting that CRA accept the late filing of the form.  Denso Manufacturing advised the CRA that the reason for the late filing was that it was not aware of the amendment to section 156 and was not properly advised by its tax consultants at the time it submitted the first RC4616 form.

The CRA concluded this audit by proposing adjustments of over $30 million on the basis that the Denso Companies should have collected and remitted GST/HST on their intercorporate supplies in 2015, as there was no section 156 election in place for that year.

In September 2018, the Minister denied the late-filing request, finding that there were no extenuating circumstances that prevented the Denso Companies from filing the election on time, so they failed to establish that they were not negligent or careless in their compliance obligations.  The Denso Companies applied for judicial review of the Minister’s decision.

The Federal Court found that the process before the Minister was procedurally fair, and that the Minister’s decision was reasonable.  As a result, it dismissed the judicial review application.

Appeal to the FCA

On appeal, the Federal Court of Appeal (“FCA”) confirmed that the approach to be taken on an appeal of a decision on a judicial review application is to conduct a de novo review of the administrative decision, with no deference to the Federal Court’s findings.

The FCA rejected the appellants’ submissions that the decision-making process of the Minister lacked procedural fairness, finding that the appellants knew the case to meet (i.e., they needed to provide an explanation for the late filing) and were provided with a full and fair chance to make their submissions.

With respect to the Minister’s decision to deny the late filing of the election form, the FCA confirmed that the appropriate standard of review is reasonableness (per Vavilov, 2019 SCC 65), which means the Court reviewing the Minister’s decision is not free to replace the Minister’s decision with the decision the Court would have made.  Rather, the Court will defer to the Minister’s decision as long as it is based on an internally coherent and rational chain of analysis and is justified in relation to the facts and law.

The FCA concluded it was reasonable for the Minister to find that there were no extenuating circumstances preventing the appellants from filing the election form on time.  The RC4616 was a simple form and would not have been difficult or time-consuming for the appellants to complete.

The Denso Companies also argued that they were not negligent or careless as they had previously completed the appropriate election form (GST25) and had sought advice regarding their obligations to file the new election form, so the Minister’s decision in this regard was unreasonable.  However, the FCA rejected this argument.  There were several CRA publications notifying the public of the requirement to file the new election form, and the Denso Companies did not seek advice from its tax consultants until after the deadline for filing the new form had already elapsed.  As a result, the FCA dismissed the appeal.


This seems to be a harsh result for the Denso Companies given that they clearly intended to have the election apply at all relevant times, and there was no revenue loss to the CRA.  At the time the new rules were announced, there was still some confusion about how they applied, and the new election form was not available until mid-2015.  Unfortunately, the decision to accept a late-filed election form is at the Minister’s discretion, and parties are required to provide a good reason for the late filing.

The Denso case illustrates how difficult it is to challenge the Minister’s decision to deny the late-filing request on a judicial review application since the applicable standard of review is reasonableness. Given this difficulty, a key takeaway is that corporations should take great care to file their section 156 elections promptly.  In addition, they will need to remember to update their election forms every time there is a corporate reorganization or other change in the corporate group.

Failing to do so risks the CRA assessing for unremitted GST/HST on taxable intercorporate supplies.  These are generally wash transactions, as the recipient would be entitled to a full ITC.  However, even the 4% wash transaction interest can be very punitive on what is essentially an oversight.  In Denso Manufacturing’s case, it was assessed for unremitted GST/HST of over $30 million on its intercorporate supplies to Denso Sales.  While Denso Sales would be entitled to a corresponding ITC, 4% wash transaction interest on the assessment amount would still result in over $1 million in interest payable.