Drolet – Quebec Court of Appeal finds that a written conveyance by a tax debtor to his spouse was not fleshed out as a written separation agreement by virtue of a subsequent retroactive divorce judgment

After a rift and the taxpayer’s husband moving out, he conveyed a ½ co-ownership interest in the family home to the taxpayer for nominal stated consideration but on the understanding that she would not be seeking support from him. The family home then was sold, and she received ½ of the net proceeds. The ARQ subsequently assessed her under the equivalent of ITA s. 160. At issue was the exclusion, under the equivalent of s. 160(4), which applied “where the property is transferred to a spouse pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written separation agreement.” Unfortunately for her, there was nothing in writing at the time of the transfer of the co-ownership interest to her, other than the conveyance itself, which made no mention of the alleged consideration provided by her to him of foregoing support and, in fact, it did not even state that they were separated.

The Court of Quebec had concluded that the mere mention in the divorce judgment that was issued about five years later that the effects of the partition of the family patrimony dated back to the time of the conveyance was not sufficient to meet the criteria of the Quebec equivalent of s. 160(4).

Before dismissing the taxpayer’s appeal, Schrager, JA noted that “where it has been argued that the deed of transfer or assignment in itself constitutes the separation agreement, the case law has been unanimous that it must contain a reference to the separation pursuant to which the transfer was made,” and that the extremely expansive interpretation of the s. 160(4) language urged by the taxpayer would have the effect of “opening up the potential for a taxpayer with huge tax debts to benefit from the transfer of the family home through the division of the family patrimony a number of years later.”

Neal Armstrong. Summary of Drolet v. Agence du revenu du Québec, 2020 QCCA 636 under ITA s. 160(4).