Royer v. Agence du revenu du Québec, 2019 QCCQ 4163

The taxpayers (a couple) were the equal co-owners of a house where they lived with their daughter and their disabled son. In order that the son’s grandmother could stay there so as to take care of their son on a full time basis, their construction (in 2007) of the house included a basement apartment (with kitchen, bathroom and laundry room, and separate door to the exterior as well as stairs to the ground floor, and taking up a portion of the basement) that was occupied by her. In 2011, they sold the house, at a gain. At issue as to the availability of the principal residence exemption was the requirement in the Taxation Act s. 274 that “the housing unit is ordinarily inhabited in the year by the individual, his spouse or former spouse or his child.”

After Boutin JCQ characterized the residence as a duplex, and after noting that although the grandmother regularly used the common areas of the first floor, the evidence of the reverse, namely, the use of the rest of the family of the grandmother’s apartment was “tenuous” (para. 53), he stated (para. 54, TaxInterpretations translation):

It was not the “personal” character of the use, by the grandmother, of part of the basement which must be taken into account but rather the use, by the persons referred to in TA section 274, of the totality of the property’s rooms, including the portion of the basement consisting of the rooms allocated to the grandmother. The Court, for example, has difficulty imagining the room of the latter was “ordinarily inhabited” by the members of the family of the plaintiffs.

The ARQ assessments of capital gains without the benefit of the principal residence exemption were confirmed.

The taxpayers (a couple) were the equal co-owners of a house where they lived with their daughter and their disabled son. They sold the house, but with the purchaser granting them a usufruct (free of any stipulated charge) respecting the residence for a term of nine years (subject to earlier termination if, during Years 5 to 9, a stipulated option was exercised). Under the sale agreement, the purchaser paid $646,382 of the purchase price up front, with the balance of $525,000 due on the expiration (or termination) of the usufruct.

In rejecting the taxpayers’ submission that they had not disposed of the residence in light of their continued rights under the usufruct, Boutin JCQ stated (at paras. 46-48, TaxInterpretations translation):

[A]rticle 1708 of the Civil Code of Quebec provides that “Sale is a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay.”

It appears undeniable to the Court that in selling the residence to 9212-7133 Québec Inc., the plaintiffs had transferred the property … . It was the deed of sale, in the clause entitled “Price,” that “entitl[ed] … to proceeds of disposition of the property, ” to repeat the words used in TA section 248. …

It was otherwise and as bare owner, which necessarily involves the transfer of property and its disposition, that 9212-7133 Québec Inc. granted to the plaintiffs a dismemberment of the right of property, in the form of a right of usufruct.