Engelberg – Court of Quebec finds that an agreement to transfer a to-be-constructed condo unit to a shareholder did not generate a shareholder benefit until the year of transfer

A corporation, which had not yet started work on a condominium project on lands that it owned, agreed to sell a project condominium unit to its individual shareholder (Engelberg) at a price that was less than the current fair market value of such a unit. Financing was confirmed, and construction commenced later that year, construction was completed a year later (in 2007) and the transfer occurred in 2008 at the agreed price.

Lareau J rejected Engelberg’s argument that the ARQ should have assessed him for a taxable shareholder benefit in 2006 or 2007 (both now statute-barred) rather than for his 2008 taxation year. Lareau J distinguished Boulet on the grounds that that case involved an already-existing property rather than a “future” property.

This does not explain why he did not consider the shareholder benefit to arise in 2007, when the condo unit was completed. However, he noted that the amount of the hypothec that was assumed by Engelberg in 2008 was different than the amount contemplated in the 2006 agreement and that this was “a change to the conditions of sale which could have an effect on the quantification of the benefit which was conferred on the shareholder.” This case implicitly seems to consider that recognition of income should be deferred until it can be accurately quantified (cf. West Kootenay).

Given this emphasis on precise benefit quantification, it is somewhat ironic that Lareau J also indicated that the ARQ was clearly in error to have assessed the 2008 shareholder benefit based on the 2006 rather than the somewhat higher 2008 value of the unit - but, as he could not increase the ARQ assessment under appeal, this did not matter.

Neal Armstrong. Summary of Engelberg v. Agence du revenu du Québec, 2017 QCCQ 14819 under s. 15(1).