Gaz Métro – Cour du Québec finds that a “mirror debt” arrangement did not result in a legal release of debt for GAAP and capital tax purposes

Gaz Métro issued debt in the public markets and then on-lent the money on the same terms to a limited partnership of which it was a 70% limited partner, so that it was the limited partnership which serviced the debt through its “mirror” debt. Gaz Métro considered that, under generally-accepted accounting principles, this arrangement qualified as one in which (as per the relevant accounting pronouncements) it had been “legally released” from its debt, thereby reducing its capital for Quebec capital tax purposes.

Fournier JCQ considered that, notwithstanding that the partnership had effectively assumed the debt, there had been no legal release given that there had been no novation.

Federally, ss. 181(3) and 190(2) indicate that Part VI capital (other than of OSFI-supervised institutions) is determined under GAAP.

Neal Armstrong. Summary of Gaz Métro inc. c. Agence du revenu du Québec, 2017 QCCQ 3664 under s. 181(3).