Denis – Court of Quebec does not accept the CRA view that a triplex is a single property for tax purposes

The taxpayer sold a triplex in 2011 at a gain, which he reported as being fully exempt under the Quebec principal residence exemption. The basement unit, which represented 54% of the triplex, had been occupied by him for use as his residence and a home office since his purchase of the triplex in 2002. The two upper units had been rented out by him to third parties until 2007, and he provided unconvincing evidence that thereafter they should be regarded as having been used as part of his principal residence.

In confirming the ARQ’s reassessment made on the basis that only 54% of the taxpayer’s gain was eligible for the principal residence exemption, Breault JCQ stated:

[I]n order for two housing dwellings or units in the same immovable to be considered a single housing unit for the purposes of TA section 274 (or ITA 54), they must be sufficiently integrated, one with the other, such that the owner can benefit from full enjoyment of the entirety. …

[N]o transformation or modification of much significance was made to the Triplex in order for the three units to be linked in some manner to each other.

This decision likely is inconsistent with the CRA view (e.g., in 2011-0417471E5 and 2016-0651791C6 – both referred to by Breault JCQ) that a duplex or triplex is a single property for tax purposes.

Respecting an unsuccessful argument of the taxpayer that his rental of one of the upper units to his friend for 14 months in 2008-2009 at his alleged cost should be ignored, Breault JCQ stated:

It is sufficient to note that the unit or property generated revenue to conclude that it was used for the purposes of producing rental income.

The taxpayer made an alternative argument that the upper units, viewed now as separate properties from the basement unit, had undergone a change of use for purposes of the Quebec equivalent of ITA s. 45(1) in 2007, so that their cost had been stepped up to their fair market value on that date. Breault JCQ noted not only that such a change of use had not been established, but that it was inappropriate for the taxpayer to now seek to benefit from a deemed gain and step-up that he had not declared in his 2007 return.

Neal Armstrong. Summary of Denis v. Agence du revenu du Québec, 2019 QCCQ 6708 under s. 54 – principal residence.