Royal Credit Services Inc. v. Ontario (Minister of Finance), 2026 ONSC 115

From 1994 to 2011, the applicant treated itself as a loan corporation (as described in Reg. 405 of the federal ITA Regulations) in its Quebec returns, and as a general corporation (as described in Reg. 402 of such Regulations) for Ontario purposes. As a result, a higher portion of its income was allocated to Quebec for Quebec income tax purposes than was allocated to Quebec for Ontario income tax purposes.

In 2012, the applicant began treating itself as a loan corporation in both Quebec and Ontario. However, the Ontario Minister of Finance, acting through the CRA as its agent (the Minister), disagreed and reassessed the applicant's tax return for 2012 on the basis that the applicant was instead a general corporation.

After some negotiations between the Minister and Revenue Quebec to resolve this inconsistency with the treatment in Quebec, Revenue Quebec agreed that it would treat the applicant as a general corporation for the 2012 taxation year. The applicant then applied in Quebec to have its status changed from a loan corporation to a general corporation for its 2011 taxation year as well. After the refusal of Revenue Quebec, the applicant brought a successful proceeding in the Quebec Superior Court for judicial review of this decision, with the result that Revenue Quebec was now required to reconsider the applicant's request to amend its 2011 tax return to be designated as a general corporation.

The applicant also sought to have the Minister make efforts to resolve the double taxation issue at the intergovernmental level. However, the CRA, acting as an agent for the Minister, decided not to take any further action with Revenue Quebec to resolve the double taxation issue for the 2011 year. This decision was based on the reasoning that the double taxation did not arise from a disagreement between the provincial agencies, but rather from the taxpayer's inconsistent declarations for 2011.

In denying this application for judicial review of this decision, Charney J noted (at para. 61) that the operational context of the Memorandum of Understanding (MOU) between Ontario and Quebec “covers only situations where “one party proposes to change the application of the allocation formula used by a taxpayer” and stated, accordingly (at para. 62);

In the present case, the taxpayer used different allocation formulas in each of its tax returns for 2011, and neither Ontario nor Quebec proposed to change the allocation used by the taxpayer. The double taxation was not the result of one province seeking to change the allocation formula; each province accepted the allocation formula declared by the taxpayer.

In its 2011 returns, Royal Credit treated itself as a loan corporation (as described in Reg. 405 of the federal ITA Regulations) in its Quebec returns, and as a general corporation (as described in Reg. 402 of such Regulations) for Ontario purposes. As a result, a higher portion of its income was allocated to Quebec for Quebec income tax purposes than was allocated to Quebec for Ontario income tax purposes.

It sought to have CRA (in its capacity of agent for the Ontario Minister of Finance) resolve this double taxation issue at the intergovernmental level by initiating negotiations under the interprovincial MOU. CRA refused.

In denying this application for judicial review of that decision, Charney J found (consistent with the CRA and ARQ view) that the MOU relevantly only dealt with situation where one province was “proposing to change the application of the allocation formula used by a taxpayer,” whereas here, neither province was proposing to change the allocation formula that the taxpayer had applied for each province.