Corporation immobilière des Laurentides Inc. v. Agence du revenu du Québec, 2024 QCCQ 5297

Two individuals (Tremblay and Cyr), who wished to acquire a condo unit in a building (“265”) which was still under construction by the taxpayer (“CILI”) agreed with CILI to acquire another unit in an already completed building (“260”) and move there on condition that, when the 265 unit became available, they would acquire the 265 unit at no loss, if a purchaser had not been found for the 260 unit by a specified date. When that date arrived, and the 260 unit had not yet been sold, CILI, and Tremblay and Cyr, entered into a “deed of retrocession” pursuant to which the original sale was annulled, the purchase price returned to Tremblay and Cyr, and they acquired the 265 unit from CILI.

In order that CILI could meet the sales threshold imposed by the bank for advancing a loan tranche, CILI also agreed with the son of its principal to sell the model condo suite to him for rental by him back to it, on the condition that CILI would take back the unit from him once a third-party purchaser had been secured. Later the next year, when the purchaser was secured, the unit was returned to CILI pursuant to a deed or retrocession, and the purchase price refunded to the son.

On both sales, CILI collected the applicable QST, refunded such QST on the retrocession, and claimed a credit for such refunded tax pursuant to QSTA s. 448 et seq. (similar to ETA s. 232), which the ARQ refused on the grounds that the retrocessions represented second taxable supplies of the two units, rather than evidencing annulments of the previous sales.

Before allowing CILI’s appeal, Fournier JCQ stated (at paras. 74, 76, 78-79, 89-90, and 120, TaxInterpretations translation):

A resolutory condition thus has the effect of destroying the contractual link existing between the parties by extinguishing it as if it had never existed. …

With regard to [the 250 unit], the condition to be fulfilled was the construction of [the 265 unit] which was actually carried out, thus having the effect of destroying the contractual link existing between the parties in question. extinguishing it as if it had never existed, without the need for other formalities and by the sole effect of the law. …

As for [the model unit], the resolutory condition that had to be fulfilled was to find a new buyer, which materialized on August 21, 2014.

In this case also the fulfillment of the condition had, following the application of the law, the effect of destroying the contractual link existing between the parties by extinguishing it as if it had never existed. …

In other words, the resolution which operates automatically is valid between the parties even in the absence of the registration of a deed, such as the deed of retrocession, in the office for the registration of real estate rights.

But since a deed of retrocession concerns the transmission or extinction of a real immovable right, it must be registered in the land registry and its registration aims, among other things, to publicize to third parties the resolution of the sale. …

Since the court has concluded that we are in the presence of a single supply for which the consideration, following the resolution of the sales, was reduced to nil, QSTA section 448 applies, especially since it is not disputed that the requirements of QSTA section 449 are satisfied.

Two individuals, who wished to acquire a condo unit in a building (“265”) which was still under construction by the taxpayer (“CILI”), agreed with CILI to acquire another unit in an already completed building (“260”) and move there on condition that, when the 265 unit became available, they would acquire the 265 unit at no loss, if a purchaser had not been found for the 260 unit by a specified date. When that date arrived, and the 260 unit had not yet been sold, CILI, and the two individuals, entered into a “deed of retrocession” pursuant to which the original sale was annulled, the purchase price returned to them, and they acquired the 265 unit from CILI.

CILI also entered into a somewhat similar transaction with the son of its principal. In order to meet a bank-imposed sales target, CILI sold the development’s model condo suite to him for rental by him back to it, on the condition that CILI would take back the unit from him once a third-party purchaser had been secured. When this “resolutory” condition was satisfied, the unit was returned to CILI pursuant to a deed or retrocession, and the purchase price refunded.

On both sales, CILI collected the applicable QST, refunded such QST on the retrocession, and claimed a credit for such refunded tax pursuant to the Quebec equivalent of ETA s. 232, which the ARQ refused on the grounds that the retrocessions represented second taxable supplies of the two units, rather than evidencing annulments of the previous sales.

Before allowing CILI’s appeal, Fournier JCQ found (at para. 74, TaxInterpretations translation) that under the Quebec Civil Code:

A resolutory condition has the effect of destroying the contractual link existing between the parties by extinguishing it as if it had never existed. …

Thus, the return of the unit in each case was to reflect that the original taxable supply was nullified, rather than representing a further taxable supply, so that the application of the s. 332 equivalent was confirmed.