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Taxation law


Mar 29th, 2023

By Charles Côté-De Lagrave

On February 24, 2023, the Quebec Court of Appeal rendered a decision regarding the rectification of a contract in a tax context: Agence du revenu du Québec v. Samson, 2023 QCCA 332.


Mr. Guy Samson ("Mr. Samson") is a real estate developer[1]. As a real estate developer, he invests in companies that carry out real estate projects[2]. Some projects are profitable and others are not[3].

In the category of non-profitable projects is the Résidences du Collège CRP project in Saint-Césaire which is owned by Résidences du Collège C.R.P. Inc. ("C.R.P.") of which Mr. Samson is a shareholder[4] . Unfortunately, the project will face important obstacles that will put C.R.P. in a precarious financial situation[5] . This will ultimately lead to C.R.P. having to seek protection under the Companies’ Creditors Arrangement Act[6] in order to proceed with its reorganization[7].

To secure C.R.P.'s financing, Mr. Samson decided to sell several buildings belonging to another company of which he is a shareholder: La Bourgarde St-Jean Inc. ("Bourgarde")[8]. Once C.R.P.'s financing is secured, the Superior Court released C.R.P. from the protection of the Companies’ Creditors Arrangement Act  [9].

The result of this series of transactions is that, on one hand, Bourgade will have generated taxable capital gains through the sale of its buildings and, on the other hand, C.R.P. will have incurred significant losses[10]. Therefore, Mr. Samson notes the need to implement a strategy to optimize the organization of the various companies for tax purposes[11].

Mr. Samson's tax advisor prepares a tax memorandum that involves a set of transactions that must occur in a specific order[12]. The objective of the arrangement is to put in place a structure that will allow Mr. Samson and his companies to use the C.R.P. losses to reduce their tax burden[13].

In summary, the arrangement seeks to allow Mr. Samson and Bourgade to benefit from a business investment loss on the shares of C.R.P. and to allow a second company to benefit from the non-capital losses of C.R.P.[14]. This second company resulted from a merger between Bourgade and an investment company into which C.R.P. transferred all of its assets and will be called CRP College Residences (2014) Inc. ("C.R.P. 2014")[15]. The result is that Mr. Samson and Bourgade remain shareholders of C.R.P. even though it is insolvent and no longer operates a business[16].

This allows Mr. Samson and Bourgade to realize a business investment loss on the C.R.P. shares through an election under section 50(1)(b)(iii) of the Income Tax Act[17] (“ITA”) which deems Mr. Samson and Bourgade to have disposed of these shares for nil proceeds and to have reacquired them immediately at nil cost[18].

The order provided in the tax memorandum is that the election will be exercised on November 30, 2013[19]. Thereafter, on December 11, 2013, Mr. Samson and Bourgade will sell by an agreement (the "Agreement") their shares in C.R.P. to C.R.P. 2014[20]. Then, C.R.P. will be liquidated and dissolved immediately after[21]. In reality, the Agreement and the various corporate resolutions are signed on April 4, 2014[22].

The issue at stake in this case only concerns Mr. Samson. In Bourgade's case, the arrangement worked because the election under section 50(1)(b)(iii) ITA must be made at the end of the taxpayer's fiscal year, and Bourgade's fiscal year ends on November 30[23]. However, in Mr. Samson's case, since his tax year ends on December 31, he could not make the election on November 30[24]. Moreover, because he sold his shares in C.R.P. on December 11, this election could not be made on December 31 either[25].

When Mr. Samson files his 2013 income tax return, the Canada Revenue Agency ("CRA") questions the validity of the election and the resulting business loss reported because of the problematic timing of the election[26].

Mr. Samson realized the error and changed the date of the Agreement and the corporate resolutions to 2014[27]. The CRA refused to recognize this change in the absence of a judgment recognizing it[28]. As a result, Mr. Samson filed an application for a declaratory judgment before the Superior Court in an attempt to obtain the rectification of the Agreement and the corporate resolutions by changing their date from December 11, 2013, to April 4, 2014[29]. The  Quebec Revenue Agency ("QRA") is involved in the case and contests the application[30]. As for the CRA, it will not make any representation[31].

Judgment of First Instance

The trial judge, the Honourable Christian Immer, J.C.S., after reiterating the principles of contractual interpretation in Quebec (Agence du revenu) v. Services Environnementaux AES Inc.[32], concluded that the two conditions set out by the Supreme Court in Jean Coutu Group (PJC) Inc. v. Canada (Attorney General)[33], allowing for the modification of a contract under Article 1425 C.C.Q. had been met[34]. With respect to the first condition, the judge concluded that the intention behind the tax arrangement was clear and sufficiently precise: its purpose was to allow Mr. Samson to make the election provided for in section 50(1)(b)(iii) of the ITA in order to claim a loss in respect of a business investment[35]. Then, with respect to the second condition, the judge concluded that if the Agreement had been dated after December 31, 2013, Mr. Samson would have been a shareholder of C.R.P. at the end of his fiscal year and would then have satisfied one of the requirements of section 50(1)(b)(iii) ITA[36].

Grounds of Appeal

The QRA appealed this decision on the grounds that Mr. Samson does not meet the requirements of the first condition of the test set out by the Supreme Court in Jean Coutu, because the intention to benefit from the election under section 50(1)(b)(iii) of the ITA is only a general intention to obtain a specific tax consequence since this intention is not accompanied by specific benefits to achieve it[37]. According to the QRA, the steps necessary to achieve the desired tax consequence have never been thought out or agreed upon[38].

Moreover, according to the QRA, in addition to the election under section 50(1)(b)(iii) ITA, the parties also wanted C.R.P. 2014 to benefit from the non-capital losses of C.R.P. following the liquidation of C.R.P. in accordance with section 88(1) ITA[39]. However, in order to benefit from section 88(1) ITA, C.R.P. 2014 must own at least 90% of the shares of C.R.P. on the day of its liquidation[40]. The Agreement had to take place on December 11, 2013, since its liquidation began on December 12, 2013[41]. Therefore, allowing the date of the Agreement to be changed would have the effect of depriving Mr. Samson and his companies of another tax benefit provided for by the tax expert's plan[42]. According to the QRA, the effect of this contradiction is to demonstrate that Mr. Samson's true intent was to execute the Agreement on December 11, 2013[43].

The Standard of Intervention

In its judgment, the Court of Appeal begins by examining the standard of intervention applicable to an appeal from a judgment on an application to rectify a juridical act[44]. Since an application to rectify a juridical act requires the trial judge to draw two conclusions, namely, to determine the common will of the parties at the time the act was concluded and then to assess whether that common will is faithfully expressed in the act, this represents an exercise in interpretation which is a question of fact or a mixed question of fact and law[45]. Consequently, the standard of intervention is that of manifest and determining error[46].

Judgment on Appeal

According to the Court of Appeal, the trial judge, based on the preponderance of the evidence, was correct in concluding that the intention of the parties in contemplating the transactions was to allow Mr. Samson to make the election under section 50(1) ITA[47]. Moreover, the tax memorandum clearly provides for the order of the transactions, i.e., the making of the election under section 50(1) ITA before the transfer of the shares and the dissolution of C.R.P.[48] Therefore, since the Section 50(1) ITA election was not available until December 31, 2023, the date mentioned in the Agreement was clearly not representing the intention of the parties[49]. The change in date only serves to give effect to the intentions of the parties and meets the requirements of the Jean Coutu decision[50].

Finally, as for the ARQ's last argument to the effect that changing the date of the Agreement would cause Mr. Samson and his companies to lose another tax benefit provided for in the tax planning, the Court of Appeal confirms that it is not up to the court of general jurisdiction to consider the tax consequences of the election made by the taxpayer[51]. If these tax consequences lead the ARQ to issue new notices of assessment, they may be contested before the competent courts[52].


This judgment of the Court of Appeal is a good summary of the principles established in the AES and Jean Coutu cases.

As in the AES case, the court explained that it was limiting its intervention to the civil law aspect of the case and avoided ruling on the tax aspect, which is the responsibility of the specialized courts[53]. In determining the tax consequences of a legal transaction, tax law must apply the rules of civil law that define the nature and legal consequences of such transactions[54]. The basis for an action for rectification of a legal act is found in the fundamental rules of contract law, such as the principle of consensualism[55]. The contract represents an agreement of will, which leads to the need to separate the negotium and the instrumentum, that is, the common will versus the declared will[56].

Finally, the court will apply the test developed in Jean Coutu, paying particular attention to the first criterion, which concerns the specific initial intention of the parties at the time of the conclusion of the contract, the answer to which will depend on the evidence in the file.

[1]Samson v. Résidences du Collège CRP (2014) inc., 2021 QCCS 3166, au para. 47.

[2] Ibid.

[3] Ibid.

[4] Ibid., au para. 48.

[5] Ibid., au para. 50.

[6] (R.S.C., 1985, c. C-36).

[7] Supra note 1, au para. 51.

[8] Ibid., aux paras. 52-54.

[9] Ibid., au para. 51.

[10] Ibid., au para. 55.

[11] Ibid., au para. 56.

[12] Agence du revenu du Québec v. Samson 2023 QCCA 332, au para. 4.

[13] Ibid.

[14] Ibid.

[15] Ibid.

[16] Ibid., au para. 5.

[17] (R.S.C., 1985, c. 1 (5th Suppl.)).

[18] Supra note 12, au para. 5.

[19] Ibid.

[20] Ibid.

[21] Ibid.

[22] Ibid., au para. 6.

[23] Ibid., au para. 7.

[24] Ibid.

[25] Ibid.

[26] Supra note 1, au para. 8.

[27] Ibid., au para. 10.

[28] Ibid.

[29] Ibid., au para. 11.

[30] Ibid., au para. 15.

[31] Ibid.

[32] 2013 SCC 65 [AES]

[33] 2016 SCC 55 [Jean Coutu]

[34] Supra note 1, au para. 98.

[35] Ibid., au para. 99.

[36] Ibid., au para. 100.

[37] Supra note 12, au para. 13.

[38] Ibid.

[39] Ibid., au para. 14.

[40] Ibid.

[41] Ibid.

[42] Ibid.

[43] Ibid.

[44] Ibid. au para. 16.

[45] Ibid.

[46] Ibid.

[47] Ibid., au para. 18.

[48] Ibid., au para. 19.

[49] Ibid.

[50] Ibid. au para. 20.

[51] Ibid., au para. 21.

[52] Ibid.

[53] Supra note 32, au para. 43.

[54] Ibid., aux paras. 45-46.

[55] Ibid., au para. 52.

[56] Ibid., au para. 32.