2020-0841041I7 Normal reassessment period - provincial tax

Principal Issues: Whether the normal reassessment period with respect to a trust begins for Ontario provincial tax purposes with the sending of the federal notice of assessment or notification of no tax payable in a situation where the taxpayer reported nil income for the province of on Ontario.

Position: Yes.

Reasons: The provincial tax Acts for the provinces and territories with an agreement with the CRA to administer provincial tax have adopted certain provisions of the federal Income Tax Act, including the provisions of subsection 152(4) and 152(3.1) with respect to the normal reassessment period. If no permanent establishment and/or no income is reported in a particular province, the federal assessment constitutes a notification that there is no tax payable in all provincial or territorial jurisdictions administered by the CRA. In that regard, the normal reassessment period begins with the sending of the federal assessment for the Ontario provincial tax purposes. Where provincial income is nil, a notification of no tax payable of provincial tax is considered as part of the federal assessment.

Author: Godson, Gillian
Section: 152(4), 152(3.1)

September 24, 2020

Charities and Appeals Directorate                                     HEADQUARTERS
Risk and Law Management Division                                 Income Tax Rulings
Nicole Mondou, Director                                                     Directorate
                                                                                                 G. Godson
Attention: Marwan El Attar
                                                                                                2020-084104

Normal reassessment period – reassessment of provincial tax

We are writing in reply to your request to provide our view as to whether the normal reassessment period for provincial or territorial tax purposes, provided by subsection 152(3.1) of the Income Tax Act (the “Act”), begins with the sending of an assessment or notification of no tax payable in a situation where the income and tax payable for a particular “Agreeing Province” is nil. An “Agreeing Province” is a province or territory that has signed an agreement with the Government of Canada for the CRA to administer that province or territory’s income tax legislation. With respect to taxpayers that are individuals or trusts, all provinces and territories, with the exception of the province of Quebec, are Agreeing Provinces.

Specifically, you have requested clarification as to whether a reassessment of Ontario provincial tax may be made beyond the normal reassessment period in a situation where a trust did not report its province of residency as Ontario and did not report any income taxable in Ontario. As outlined in your inquiry, in the opinion of the CRAe, the trust is a resident of Ontario. However, it incorrectly filed its trust income tax and information return (T3) for the taxation years 2008 to 2012 (inclusive) reporting Alberta as its province of residence. In addition, the trust reported 100% of its income as income earned in Alberta.

It is your view that for provincial and territorial tax purposes in all Agreeing Provinces, the normal reassessment period begins with the sending of the notice of assessment in all Agreeing Provinces, regardless of whether the taxpayer reported its residence or any income in the Agreeing Province in question. In that regard, in a situation where the Notice of Assessment or notification that no tax is payable confirms (whether explicitly or not) that no tax is payable to an Agreeing Province, such as Ontario in this case, the normal reassessment period for that Agreeing Province began with the issuance of the Notice of Assessment or notification that no tax is payable.

Our comments

In general, subsection 150(1) of the Act provides that a taxpayer is required to file a return of income with the Minister in prescribed form and that contains prescribed information for each taxation year.  

Subsection 152(4) provides that for a particular taxation year, the Minister may, at any time, issue an assessment, reassessment or additional assessment of tax or notify a taxpayer that no tax is payable. However, assessments, reassessments, or additional assessments of tax, interest or penalties for a taxation year cannot be issued by the Minister after the normal reassessment period in respect of the year unless the circumstances described in paragraphs 152(4)(a) or (b) of the Act apply.

Subsection 152(3.1) defines a normal reassessment period for the purposes of subsection 152(4), for a taxpayer in respect of a taxation year, as three or four years (depending on the type of taxpayer) after the day of sending the notice of an original assessment or an original notification that no tax is payable. The normal reassessment period for a trust, other than a mutual fund trust, is three years from the sending of the original assessment or notification of no tax payable.

The income tax acts of the Agreeing Provinces contain references to certain provisions of the federal Income Tax Act, including subsections 150(1), 152(4) and 152(3.1). In that regard, the sending of a notice of assessment or notification of no tax payable begins the normal reassessment period for both federal and provincial or territorial tax purposes for the Agreeing Provinces.

In that regard, with respect to the Agreeing Provinces, subsection 150(1) requires a taxpayer to file a return of income in prescribed form, for both federal an provincial tax purposes. In addition, a taxpayer is required to indicate the province of residency, the provinces where a PE exists, and to allocate income to the provinces where they are a resident and where they have a PE. In general, form T3MJ, T3 Provincial and Territorial Taxes for 2019 – Multiple Jurisdictions, is the prescribed form required for a trust to report the income allocated in each province or territory where the trust is a resident or operates a business through a permanent establishment.

In a situation such as the one described in your inquiry, where a trust files a T3 return and does not report having a permanent establishment or income in a particular Agreeing Province (either by not reporting anything in respect of that Agreeing Province in the form T3MJ or by not including the form in the T3 return), it is our view that the trust has reported nil income with respect to the particular province or territory. Furthermore, the resulting Notice of Assessment or notice of no tax payable is considered to include a notice of no tax payable in respect of the Agreeing Province. To take an alternate view in circumstances such as these would result in the normal reassessment period in the particular Agreeing Province never beginning . As a result, the CRA would have an indefinite period of time to make an assessment or reassessment.

Accordingly, we agree with your view that the normal reassessment period provided by subsection 152(3.1) begins for both federal and provincial tax purposes for all Agreeing Provinces with the sending of a notice of assessment or notification of no tax payable. Furthermore, we agree with the view that the federal assessment constitutes a Notice of Assessment or notification of provincial or territorial tax for all Agreeing Provinces. In that regard, a reassessment of provincial or territorial tax for an Agreeing Province may not be made beyond the normal reassessment period regardless of whether the particular Agreeing Province is identified in the notice of assessment, unless one of the exceptions provided by subsection 152(4) applies.

This view is consistent with the Ontario Superior Court decision in Aubrey Dan Family Trust v Minister of Finance, 2016 ONSC 3801, where the court opined that a federal assessment constitutes an assessment or a notification of no tax payable in all provincial and territorial jurisdictions administered by the CRA, including those jurisdictions with no income tax liability. Therefore the normal reassessment period begins with the sending of the federal assessment, and the Minister cannot indefinitely assess income taxes in a province or territory not referred to in an original assessment.

Please note that our document 2013-0476501I7 no longer reflects our view on the issue of when the normal reassessment period begins for all Agreeing Provinces, including those with nil income.

We trust these comments will be of assistance.

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2022

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2022