St-Joseph Immobilier Inc. v. Agence du revenu du Québec, 2024 QCCQ 766

In 1984, the plaintiff (St-Joseph) acquired a 12-storey tower used only for commercial rentals, and between 1997 and 2002, converted four of the upper floors to seniors’ residences (giving rise to exempt rentals). Starting in 2002, it incurred costs in converting the 1^st and 2^nd floors into seniors’ residences.

Regarding QSTA s. 199(c) (similar to ETA s. 169(1) – B(c)), St-Joseph argued based on QSTA s. 42.5 (similar to ETA s. 141.1(3)(a)) that it had incurred the costs “in connection with the … termination of a commercial activity” of it, so that such costs were deemed to have been incurred in the course of its commercial activity. In rejecting this submission, and in confirming the denial of the ITRs, Lachapelle JCQ stated (at paras. 93, 103, TaxInterpretations translation):

[T]he intention of St-Joseph was that the work carried out on the first and second floors of the Building was to adapt the Building for the residential or lodging use of individuals. …

The Court concludes that the concept of the cessation of an activity does not include the transformation of the activity.

In 1984, the plaintiff (St-Joseph) acquired a 12-storey tower used only for commercial rentals, and between 1997 and 2002, converted four of the upper floors to seniors’ residences (giving rise to exempt rentals). Starting in 2002, it incurred costs in converting the 1^st and 2^nd floors into seniors’ residences.

Lachapelle JCQ found that St-Joseph was not entitled to input tax refunds (ITRs) pursuant to QSTA s. 199(b) (similar to ETA s. 169(1) – B(b)) as there was no evidence of improvements (i.e., additions to the ACB) of the portion of the building used in commercial activities of St-Joseph. Turning to QSTA s. 199(c) (similar to ETA s. 169(1) – B(c)), she went on to reject an argument of St-Joseph based on QSTA s. 42.5 (similar to ETA s. 141.1(3)(a)) that it had incurred the costs “in connection with the … termination of a commercial activity” of it, so that such costs were deemed to have been incurred in the course of its commercial activity.

Starting in 2002, St-Joseph incurred costs in converting the 1^st and 2^nd floors of a 12-storey mixed-use tower from commercial rental use into residences for rental to seniors.

St-Joseph argued based on the QSTA equivalent of ETA s. 141.1(3)(a) that it had incurred the costs “in connection with the … termination of a commercial activity” of it, so that such costs were deemed to have been incurred in the course of its commercial activity. In rejecting this submission, and in confirming the denial of input tax refunds, Lachapelle JCQ stated (at paras. 93, 103, TaxInterpretations translation):

[T]he intention of St-Joseph was that the work carried out on the first and second floors of the Building was to adapt the building for residential or lodging use of individuals. …

The Court concludes that the concept of the cessation of an activity does not include the transformation of the activity.