ST Productions – Court of Quebec finds that a USD contract price that was paid for in instalments as the work was performed was to be translated with each payment

In May 2008, the Quebec taxpayer (ST Productions) agreed to pay another company with which it was affiliated in some manner (Hybride) approximately U.S.$6 million in eight monthly instalments for producing special effects for a film production. The amount of the Quebec film tax credit which ST Productions could claim turned on when its expenses “arose” under the Quebec equivalent of ITA s. 261(2)(b). The taxpayer claimed that the expense arose only when the work was completed and it was invoiced for it (at which time the U.S. dollar had appreciated), rather than as the work was performed and paid for.

After noting that, although the contract provided for adjustments to the contract price in the event of specified changes to the costs of performing the work, no such adjustments occurred, Massol JCQ stated that “the percentage-of-completion method [which] takes into account the work effected as it occurs … should be considered … the method to be adopted,” and that “the foreign currency conversion arose at the time of each due date.”

Neal Armstrong. Summary of 9189-7397 Québec Inc. v. Agence du revenu du Québec, 2018 QCCQ 4692 under s. 261(2)(b).