PCI Géomatics – Quebec Court of Appeal finds that a loan that was not repayable if the borrower’s revenues consistently declined was a forgivable loan

A company (PCI) engaged in R&D activities for the development of software for satellites, received a non-interest-bearing loan from Industry Canada that was repayable by it (on a formula basis) over the following 15 years: in equal annual instalments if its revenues were stable; in amounts up to 1.65 times the advances received if its revenues increased consistently and significantly over the 15-year repayment period – but not at all if its revenues decreased steadily throughout the 15-year repayment period.

Hogue, J.C.A. found that, in light of this last feature, the loan was a “forgivable loan” and, thus, “government assistance” (under a Quebec definition similar to that in ITA s. 127(9)) so that its amount reduced R&D tax credits of PCI for Quebec purposes. In distinguishing McLarty, she stated that here, by way of contrast:

[T]he Agreement does not have the effect of [merely] limiting the remedies available to the government in the event of a PCI default. Rather, it provides that PCI’s obligation to repay will only arise if its revenue is maintained or increases, which is a future and uncertain event. This condition goes to the very nature of the debt.

Neal Armstrong. Summary of Agence du revenu du Québec v. PCI Géomatics Entreprises Inc., 2020 QCCA 1342 under s. 127(9) – government assistance.