Giguère – Court of Quebec finds that interest demanded by a receiver on a fraudulent advance did not qualify as a disposition expense on the property sold to repay the advance

The wife of the manager of a corporation received fraudulent advances from the corporation, which she used to purchase two buildings. When the corporation failed, she negotiated a settlement with the receiver (RSM) pursuant to which she sold the properties (at a significant gain) and repaid the moneys in question plus interest at 6%. In rejecting her claim that this interest paid was a disposition expense under the Quebec equivalent of ss. 40(1)(a)(i), Vaillancourt JCQ found that the taxpayer “paid the interest to RSM for the sole purpose of buying time to repay the receiver the sums which she had received without any right thereto.”

This factual characterization also scuppered her argument in the alternative that the interest was a currently deductible expense - even before getting to his finding that the properties in question were personal-use properties rather than rental properties.

Neal Armstrong. Summary of Giguère v. Agence du revenu du Québec, 2018 QCCQ 874 under s. 40(1)(a)(i).