Trottier – Court of Quebec finds that the distribution of a capital gain to beneficiaries of a family trust was a sham

The Benoît Trottier Family Trust realized a capital gain of $950,000 in 2014, which was eligible for the enhanced capital gains exemption. The trust purported to distribute funds equal to that capital gain on December 29, 2014 to two beneficiaries (the wife and mother of Mr. Trottier). The ARQ denied the deduction claimed by the trust under the Quebec equivalent of ITA s. 104(6) and added $950,000 to Mr. Trottier's income pursuant to the Quebec equivalent of s. 105(2). In confirming these assessments and finding that the purported distribution was a sham as Mr. Trottier retained control of the funds at all times and, several months later, used them to acquire securities in his brokerage account, Riverin JCQ stated:

Here, there was no actual distribution, as the beneficiaries did not receive the amounts and had no control over them. Mr. Trottier did not relinquish these amounts. In reality, the "beneficiaries" did not derive any easily realizable economic value from them.

The preponderant evidence demonstrates that Mr. Trottier and the Trust claimed to distribute an amount of $950,000 to Ms. Perrault and Ms. Sauvageau, but this was not the case. This transaction was designed and carried out to disguise the reality and deceive the tax authorities, as Mr. Trottier retained control over this amount.

Neal Armstrong. Summary of Trottier v. Agence du revenu du Québec, 2026 QCCQ 4372 under s. 104(24).