Hunt – Federal Court of Appeal finds that the s. 207.05 advantage tax was not a penalty subject to a due diligence defence, and that it was not constitutionally invalid

The taxpayer challenged the validity of 100% advantage-tax assessments made on him pursuant to s. 207.05 in respect of his TFSA on the grounds that ss. 207.05 and 207.06, in substance, imposed a penalty for which a defence of due diligence was available rather than a tax. He also argued that, since under those provisions the Minister effectively had the discretion as to the rate of tax to be imposed (by being able to waive anywhere between 100% and 0% of the tax), those provisions were contrary to s. 53 of the Constitution Act, 1867, which established a "no taxation without representation" principle.

In finding that those provisions did not impose a penalty, Stratas JA indicated inter alia that “recharacterizing the regime as imposing a penalty” so as to “bring into operation a defence of due diligence … would undermine [the] intricate and detailed scheme provided under the provisions.”

In finding that the discretion accorded to the Minister under s. 207.06(2) did not violate s. 53, he indicated that the provision did not establish “a standardless sweep for the Minister,” whose waiver discretion thereunder was to be guided by the factors listed in that provision and “by the need to curb abuse of the tax-free savings account regime bearing in mind the purposes of that regime.” – and, to boot, a waiver decision of the Minister under s. 207.06(2) was “a reviewable decision subject to legal constraints set by Parliament in s. 207.06, not a purely policy-based guess by the Minister about what a number should be”.

Neal Armstrong. Summaries of Hunt v. Canada, 2026 FCA 88 under s. 207.06(2) and Constitution Act, 1867, s. 53.