Duval v Agence du revenu du Québec, 2023 QCCS 4739

In 2014, the ARQ assessed the 2010 taxation years of the taxpayers (who had been victims of fraud) to treat only ½ of their resulting loss from an investment as deductible in computing their business income. The taxpayers did not file objections. After appealing similar federal assessments received in 2016, in 2019 the Tax Court of Canada ruled that their losses were fully deductible in computing their business income.

In 2020, the taxpayers requested that the ARQ reassess their 2020 taxation years on the same basis, pursuant to s. 1010.0.2 of the Taxation Act (Quebec), which provided:

Notwithstanding the expiration of the time limits provided for in section 1010, where a taxpayer is the subject of an assessment or reassessment made under the Income Tax Act … the Minister may, within one year after the date of that assessment, redetermine the tax, interest and penalties payable by the taxpayer and make a reassessment for the sole purpose of taking into account elements that may be considered to relate to that assessment or reassessment.

The ARQ refused by letter to reassess one of the taxpayers, and did not respond to the other taxpayers’ request. The taxpayers then applied to the Qubec Superior Court for judicial review of the ARQ refusal to reassess. In rejecting the ARQ position that the Quebec Superior Court lacked the jurisdiction to entertain the judicial review application because the matter came within the exclusive jurisdiction of the Court of Quebec (to which appeals from ARQ reassessments were made), Paradis JCS stated (at paras. 37-40, TaxInterpretations translation):

[T]he Court considers that the true nature of the application instituted by the plaintiffs is essentially different from the objections they could have raised following the issuance of the notices of assessment by the ARQ in 2014.

[Furthermore] the ARQ's position means that a taxpayer would be required to resort to the [reassessment appeal] provisions of sections 93.1.1 et seq. of the TAA as a prerequisite to any application by the Minister of the rules set out in section 1010.0.2 of the TA.

… [A]rticle 1010.0.2 contains no such precondition for its application.

Furthermore, the ARQ's position would be likely to prevent the Minister from exercising his reassessment power under pursuant to section 1010.0.2 of the TA in a situation where a taxpayer had not previously filed a notice of objection under the above provisions … .

The Quebec taxpayers did not object to ARQ reassessments that denied ½ of their claimed business loss for 2010 – but then successfully appealed to the Tax Court similar federal reassessments of that year. They then requested (years after the period for objecting to the earlier ARQ reassessments had expired) that the ARQ reassess their 2010 taxation years in light of the favourable Tax Court judgment (and CRA assessments to implement it) pursuant to s. 1010.0.2 of the Taxation Act (Quebec). S. 1010.0.2 provides that, notwithstanding the expiration of the period to file objections, the Quebec Minister may, within one year of a federal reassessment “make a reassessment for the sole purpose of taking into account elements that may be considered to relate to that assessment or reassessment.”

The taxpayers applied to the Qubec Superior Court for judicial review of the ARQ’s refusal to reassess. Paradis JCS rejected the ARQ position that the Quebec Superior Court lacked the jurisdiction to entertain the judicial review application because the matter came within the exclusive jurisdiction of the Court of Quebec (to which appeals from ARQ reassessments are made). He indicated inter alia that the effect of the ARQ position was that a taxpayer would be required to resort to the Quebec objection procedures as a prerequisite to any reassessment by the Quebec Minister pursuant to s. 1010.0.2, whereas s, 1010.0.2 contained no such precondition for its application.