The tax appeal concerned two issues:

  • Whether the Ontario minister of finance (“minister”) reassessed ADFT within the applicable normal reassessment period; and
  • If the reassessment was timely, whether the ADFT was resident in Ontario or Alberta for income tax purposes.

The first issue was the subject of the summary judgment motion.  The motion involved both the question of whether the reassessment was statute-barred and whether the normal reassessment period was waived.  In brief, ADFT stands for the propositions that:  federal notices of assessment trigger the normal reassessment period federally and for Ontario income tax purposes; and waiving the normal reassessment period federally constitutes a waiver for Ontario income tax purposes.  While the judgment considered only Ontario income tax issues, the principles set out in ADFT likely apply to other provinces for which the CRA has assumed administrative responsibility, unless the provisions in a given provincial statute are distinguishable from Ontario.

Background

The compliance and audit history was straightforward:  ADFT filed its T3 return for 2007 on February 28, 2008; ADFT was assessed as filed as an Alberta resident, by notice of assessment dated July 30, 2008; the CRA audited ADFT’s 2007 through 2009 taxation years in 2010, apparently in connection with determining its provincial residency; on July 6, 2011, the CRA proposed to reassess on the basis that ADFT was a resident of Ontario rather than Alberta; 15 days were allowed for a response because 2007 would become statute-barred on July 30, 2011; the CRA advised that if further time was required the normal reassessment period must be waived; the CRA accepted waivers as being in respect of ADFT’s provincial residency status and concluded that counsel was seeking additional time to make representations for that issue; the CRA concluded ADFT was a resident of Ontario rather than Alberta during the 2007 through 2009 taxation years; and a reassessment dated in February, 2012 was issued for ADFT’s 2007 taxation year.

Original assessment triggered normal reassessment period in all jurisdictions

The Ontario Superior Court of Justice (“ONSC”) noted that the normal reassessment period is triggered by the sending of an original assessment or notification that no tax is payable pursuant to the Ontario Act, which incorporates provisions of the federal Income Tax Act (“Federal Act”), including ss. 152(3.1) (the normal reassessment period).  ADFT’s filing position as assessed was based on residence in Alberta with no income tax payable in any other province.  ADFT submitted that 2007 became statute-barred for any provincial taxation on July 30, 2011.  The minister’s position was that the original notice of assessment for 2007 was only for federal and Alberta tax, thus the Ontario “reassessment” for the 2007 taxation year, issued in 2012 was, in fact, the original Ontario notice of assessment and was not statute-barred. 

The ONSC stated that the minister’s position was problematic:  the CRA auditor took the position that 2007 would go statute-barred after July 30, 2011; had the proposed reassessment truly been an original Ontario notice of assessment the statute-barred date would have been irrelevant; and, more importantly, the minister’s position was against public policy – if an original notice of assessment was not applicable for all provinces and territories, a taxpayer may remain exposed in any other province or territory indefinitely, which is untenable.  The ONSC thus held that the original notice of assessment (federal and Alberta) was applicable for Ontario and that original notice triggered the normal reassessment period under the Ontario Act. 

There was a valid waiver under the Ontario Act

The normal reassessment period for Ontario income tax purposes may be waived where a taxpayer files a waiver in “prescribed form” within the normal reassessment period for a taxation year.

The Ontario Act and Federal Act define “prescribed” differently: 

  • For Ontario, prescribed form or information on a form means prescribed by order of the provincial minister or by regulation; and
  • Federally, prescribed form, information on a form or manner of filing means as authorized by the (federal) minister; however;
  • Neither “order” nor “authorized” in either statute are defined terms.

Both the Ontario Act and Federal Act state that every form purporting to be a prescribed or authorized form is deemed to be a form prescribed by order (Ontario) or prescribed or authorized (Federal).  This is the case unless the purported form is “called into question” by a minister or a delegate.  The Federal Minister of National Revenue has the authority to assess federal and Ontario income tax and the CRA acts as her agent and delegate.  Further, the Ontario Act provides that its provisions shall be applied and interpreted consistently with the Federal Act. 

In the ONSC’s view, on its face the federal T2029 waiver form purports to be a prescribed form.  The relevant provision of the Ontario Act, as a deeming provision, avoids the formal proof of a ministerial order and, in the context of the relationship between the Federal Act and Ontario Act, including the delegation of authority to the CRA, express wording on the T2029 that it purports to be a form under the Ontario Act is not required.  Thus, form T2029 purports to be a waiver for federal and Ontario Act purposes.

Concerning the “called into question” criterion, ADFT argued that there was no order or other documentation prescribing the T2029 waiver form for Ontario income tax purposes.  However, according to the ONSC, this was not “calling into question” the validity of the official nature of the T2029 form, which is deemed prescribed even if it was not actually prescribed.  Consequently, the ONSC held that the Ontario Act fully adopted the federal waiver regime and form T2029 and that any doubt is removed by the interpretative provisions of the Ontario Act, including the delegation of authority to the Federal minister and the deeming rules.  Thus, the T2029 waiver form was a form prescribed by order of the Ontario minister that was not called into question by that minister or a delegate.  Therefore, the waiver provided to the CRA auditor was valid and allowed assessment of Ontario income tax.  As a result, ADFT’s motion for summary judgment was denied. 

Counsel for ADFT raised valid arguments that were ultimately not accepted by the ONSC, which seems to have rendered a sound judgment on the legal merits in the motion.  In terms of ADFT’s precedential value, taxpayers’ counsel and Crown counsel each find helpful principles: 

  • Federal assessments are original assessments triggering the Ontario Act normal reassessment period, even if provincial tax is not assessed and the Federal assessment is not a notification of no provincial tax payable; but
  • Federal normal reassessment period waivers also waive the Ontario Act normal reassessment period.