Sommets du Mont-Tremblant – Court of Quebec finds that an in-kind damages payment should be treated the same as a sale of the transferred property

The taxpayer (“Les Sommets”), which had received $400,000 for granting an option to a third party to acquire various properties, later settled an action in damages against it by the current holder of the option (“Solstice”), for failure to honour the option. In the settlement, it agreed that, in consideration for the $400,000 referred to above, it would transfer a particular property (not covered by the option) to Solstice. That property had been held in its inventory at a value of $400,000.

Gosselin JCQ found that this transfer constituted an in-kind damages payment, or “dation en paiement.” However, she found that it should be treated the same as a sale of an inventory property for $400,000, giving rise to business income, given inter alia that the property was transferred in lieu of the transfer of properties (under the original option) that would have occurred in the ordinary course of its business.

Neal Armstrong. Summary of Sommets du Mont-Tremblant Inc. v. Agence du revenu du Québec, 2023 QCCQ 9061 under s. 9 – compensation payments.