An individual (Larocque) was a director of a corporation (Construction LMA), engaged in the development of residential projects. Two days after the ARQ had issued a statement of account to Construction LMA showing that it had failed to remit over $527,000 in sales taxes and employee source deductions, Larocque transferred his residence, which was mortgaged to a bank to secure debt owing to the bank by Construction LMA, to a newly formed trust (of which he was the beneficiary and one of the two trustees) in consideration for the assumption of the bank debt.

Two years later, the ARQ assessed Larocque under the Quebec equivalent of s. 227.1 and, a month later, it assessed the trust under the Quebec equivalent of s. 160, based on the extent to which the fair market value of the residence exceeded the amount of the assumed debt.

Tremblay JCQ, noted that, in fact, Larocque had continued to service the bank debt, so that the consideration received by him from the trust for the transfer by him was “purely fictitious” and that the purported assumption of the bank debt was a “sham”. However, the ARQ could not now reverse its assessing position, as “the determination of the value of the consideration must be made at the time of the transfer”. However, he noted that the ARQ might nonetheless consider the payments that continued to be made by Larocque to service the bank debt were further transfers by Larocque to the trust for s. 160 purposes, although this issue was not before him and he was not passing on it.

In rejecting the argument of the trust that it should not be liable under s. 14.4 for the director's liability of Larocque that had not been assessed until two years after the transfer of the residence, Tremblay, JCQ, in following, inter alia, Colitto, stated:

In summary, in a case involving the application of [the s. 227.1 equivalent], it is not the assessment itself that gives rise to the tax debt of a corporate director. Under this provision, when the conditions for applicability are met, the tax debt of the director retroactively arises on the date of the corporation's failure to meet its tax obligations.

Accordingly, the trust assessment was confirmed.

Neal Armstrong. Summary of Larocque (Fiducie familiale Larocque) v. Agence du revenu du Québec, 2025 QCCQ under s. 160(1).

We have translated a CRA interpretations released last week and a further 6 CRA interpretations released in June and May of 2000. Their descriptors and links appear below.

These are additions to our set of 3,262 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 25 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5^th of each month).

This Friday's release of three severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their May 2025 release) is now available for your viewing.

S. 94(3)(f) and the s. 94(1) definition of “electing trust” contemplate that a trust which is deemed under s. 94(3)(a) to be resident may elect, with its return for its first taxation year in which it is subject to the s. 94 rules, to exclude its “non-resident portion” from taxation under those rules. If a trust did not file a schedule of assets as requested in Question 1 of the T3 income tax return for that year, would an election made by it under s. 94(3)(f) be invalid?

CRA noted that, having regard to s. 32 of the Interpretation Act, the question was whether the missing information could be referred to as being substantial to the T3 return, i.e., impacting the substance of that prescribed form. Although this was a question of fact, CRA indicated that it was reasonable to conclude that a schedule of assets supporting the amount of income subject to Canadian tax (or the non-resident portion that was not subject to Canadian tax) may be viewed as substantive to the T3 return, so that failure to provide the Schedule would cause the T3 return to be considered to be invalidly filed.

Accordingly, where an s. 94(3)(f) election was filed with a T3 return for that first taxation year which was invalid because of the missing schedule, that election also would be invalid.

If the taxpayer then made a second attempt at filing a T3 return that was not missing substantive information and therefore could be considered validly filed, it would represent a return of income for the first taxation year in which the election could be made, so that the s. 94(3)(f) election filed with that return would be validly filed, even though the return was filed late.

Neal Armstrong. Summary of 4 October 2024 Internal T.I. 2024-1013191I7 under s. 94(3)(f).