2014-0518641I7 Consequential Adjustments to Corporate Min Tax

Principal Issues: Whether adjustments can be made to Ontario Corporate Minimum Tax in a statute-barred taxation year to take into account changes in balances to a prior taxation year (e.g., application of a loss carry back)?

Position: Yes.

Reasons: Subsection 112(2) of Ontario’s Taxation Act, 2007 provides that subsection 152(4.3) of the Income Tax Act applies for the purposes of the Taxation Act, 2007. Subsection 152(4.3) allows the Minister to reassess beyond the normal reassessment period where it is necessary to do so in order to make a recalculation of a taxpayer’s “balance” for that year as a result of an adjustment included in the computation of a “balance” for previous taxation year. Because of subsection 112(2) of the Taxation Act, 2007, the definition of “balance” in 152(4.4) of the Act would include the amounts that have been changed for the Corporate Minimum Tax in a taxation year as a result of a reassessment.

Author: Godson, Gillian
Section: 152(4.3), 152(4.4)

                                                                                                                                                                 September 12, 2014

      T2 Strategy & Coordination Section                                                                                                   HEADQUARTERS
      Assessment and Benefits Services Branch                                                                                        Income Tax Rulings
                                                                                                                                                                  Directorate
      Attention:  Jeff Lewis                                                                                                                           Gillian Godson

                                                                                                                                                                  2014-051864

      Adjustments to Corporate Minimum Tax in a statute-barred taxation year

We are writing in reply to your email of January 15, 2014, requesting our views on whether subsection 152(4.3) of the Income Tax Act (the “Act”) provides the Minister with the discretion to adjust the balances with respect to the Ontario Corporate Minimum Tax (“CMT”) for a taxation year which is statute-barred, where the adjustments are a result of a reassessment of the previous tax year.

In your inquiry you have described a situation where, as a result of a reassessment of the 2008 taxation year (for example to reflect the application of a loss carryback), adjustments have been made to balances which impact the calculation of the CMT credit for the 2009 and subsequent taxation years. The 2009 taxation year is now statute-barred. You have asked if the balances with respect to the CMT credit for 2009 may be adjusted beyond the normal reassessment period in these circumstances. As well, you asked if our conclusions would also apply to the Ontario Transitional Tax Debits or Credits.

Our Comments

For taxation years ending after December 31, 2008, Ontario harmonized its corporate income tax with the federal corporate income tax. The province of Ontario’s Taxation Act, 2007 (the “TA”) applies for taxation years ending after December 31, 2008, and enables Ontario’s corporate income tax, minimum tax, capital tax, and special additional tax for life insurers to be administered by the Canada Revenue Agency. With respect to the issue at hand, subsection 112(2) of the TA provides that subsections 152(4.3) and 152(4.4) of the Act apply for the purposes of the TA. For the purposes of this letter, references to provisions of the Act should be read as references to those provisions as they apply to the TA because of subsection 112(2) of the TA.

Subsection 152(4.3) of the Act allows the Minister to reassess beyond the normal reassessment period for a taxation year where it is necessary to do so in order to make a recalculation of a taxpayer’s “balance” for that year as a result of an adjustment to an amount deducted or included in computing a “balance” of the taxpayer for another taxation year. Subsection 152(4.3) also allows, under the same conditions, the modification of a refund or other amount payable by a taxpayer for the other year. A “balance” of a taxpayer for a taxation year is defined in subsection 152(4.4) as the income, taxable income, taxable income earned in Canada or any loss of the taxpayer for the year, or as the tax or other amount payable by, refundable to, or deemed to have been paid by, the taxpayer for the year.

The reassessment may be made only where the adjustment of the amount deducted or included in the prior year’s balance was made in an assessment for that year or as a result of a decision on an appeal from an assessment for that year. A reassessment of a taxation year under subsection 152(4.3) outside the normal reassessment period for that year may not be made after the end of one year after all rights of objection and appeal have expired or been determined with respect to the other year. Such a reassessment may be made only where the Act requires the inclusion, or allows the deduction, in computing a taxpayer’s balance for the year of an amount relating to the deduction or inclusion that was adjusted for the other year.

In the situation at hand, the balances that changed in the 2008 taxation year impact the calculation of the CMT credit in a subsequent taxation year (or similarly, the Ontario Transitional Tax Debits or Credits in the 2009 and subsequent taxation years). In our view, the definition of a “balance” in subsection 152(4.4) also includes these particular balances, which would impact these calculations.

Accordingly, in a situation where the 2009 harmonized T2 Corporate Income Tax Return (which includes both the federal and Ontario annual information returns) is statute-barred, subsection 152(4.3) of the Act would allow the Minister to issue a consequential reassessment for the 2009 taxation year with respect to balances that had been adjusted in the 2008 taxation year to the extent that the consequential reassessment reasonably relates to the change in the balance of the year. As a result, the Minister may issue a reassessment of the 2009 taxation year to reflect the changes required in the calculation of the CMT, within the timeframes specified in subsection 152(4.3) of the Act.

We trust our comments will be of assistance.

Yours truly,

Terry Young, CA, CPA
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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