Royal Credit Services – Ontario Divisional Court finds that the Ontario-Quebec MOU does not apply to inconsistent methods for interprovincially allocating income as filed 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 the 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.

In passing, Charney J noted that Royal Credit had recently brought a successful proceeding in the Quebec Superior Court for judicial review of the refusal of the ARQ to switch Royal Credit over to the Reg. 402 general corporation method for its 2011 taxation year, with the result that the ARQ was now required to reconsider that request.

Neal Armstrong. Summary of Royal Credit Services Inc. v. Ontario (Minister of Finance), 2026 ONSC 115 under Reg. 402.