9127-6287 Québec Inc. v. Agence du revenu du Québec, 2023 QCCQ 4688

The taxpayer, during the taxation years at issue, suspended the operation of its golf course to backfill two artificial lakes in its driving range and to replace its clubhouse and garage – as well as to partially construct (but never complete) a mini-golf course. The ARQ denied the various expenses quoted in para. 57 below incurred during such taxation years on the basis of the application of TA s. 135.4 (similar to ITA s. 18(3.1)).

After referring to s. 135.4, Bourgeois JCQ stated (at paras. 54, 57-58, 60, TaxInterpretations translation):

[T]he wording of this section cannot apply to work done on the driving range, golf course maintenance or the various tasks involved in building a mini-golf course, since they can in no way be equated with a "building or the land subjacent to the building, or the contiguous land necessary for the use of the building or a parking area, driveway, yard, garden", etc. …

[T]he Court, using its judicial power, exercised reasonably, determines that 50% of the costs of insurance, interest and bank charges, long-term interest, business taxes, licences, consulting fees, property taxes, utilities and telephone are deductible.

… [Thus] only the 50% of the costs related to those expenses during the construction period of the clubhouse and garage should be subject to the denial under TA section 135.4. ...

According to the evidence, the period that can be considered as a building construction period within the meaning of TA section 135.4 LI is a four-month period, from April 12, 2013 to July 17, 2013 ... . [E]xpenses incurred before and after this period must be considered current and non-capitalizable.

The taxpayer (“Québec Inc.”), during the taxation years at issue, suspended the operation of its golf course to backfill two artificial lakes in its driving range and to replace its clubhouse and garage – as well as to partially construct (but never complete) a mini golf course. In rejecting an ARQ argument that all the taxpayer’s expenses incurred during those taxation years should be denied on the basis that it was not carrying on a business, Bourgeois JCQ stated (at paras. 42-44, TaxInterpretations translation):

The work subsequently undertaken by Québec Inc. was essentially aimed at making the golf course and driving range more profitable, and building a new clubhouse. Moreover, the addition of a mini-golf course was part of a project whose sole purpose was to generate business income.

Moreover, there is nothing in the evidence to show that Québec Inc. and Tanguay [its principal] intended to generate tax losses for that reason alone.

In view of the foregoing, and contrary to the Paletta case, the Court concludes in the present case that the evidence shows that the decision to build, renovate and maintain the golf course facilities was made in the hope of generating income.