The taxpayer sold a triplex in 2011 at a gain, which he reported as being fully exempt under the Quebec principal residence exemption. The basement unit (“9090”), which was accepted as representing 54% of the triplex, had been occupied by him for use as his residence and a home office since his purchase of the triplex in 2002. The two upper units (9092 and 9094, each representing 23% of the triplex), had been rented out by him to third parties until 2007, but he took the position that thereafter they represented personal use property of the taxpayer – although, for 14 months, he rented out one of the units to a friend at his stated cost of $400 per month - and, with the stated objective of improving the salability of the triplex, in 2011 he announced that 9094 was available for rent and leased it shortly before the sale of the triplex. The ARQ reassessed on the basis that only the portion of the capital gain allocated by it to 9090 (54%) was eligible for the principal residence exemption.
In affirming the ARQ position, Breault JCQ stated (at paras. 57, 68-69, TaxInterpretations translation):
[I]n order for two housing dwellings or units in the same immovable to be considered a single housing unit for the purposes of TA section 274 (or ITA 54), they must be sufficiently integrated, one with the other, such that the owner can benefit from full enjoyment of the entirety. Each must not be a distinct and autonomous unit; each must instead complement the other and lose to some extent its separate identity for the benefit of the whole. …
[N]o transformation or modification of much significance was made to the Triplex in order for the three units to be linked in some manner to each other. …
The units preserved their distinct character… . Each continued to have its own access door.
In addition, the absence of a profit element in the rental at $400 per month had not been established, and furthermore, if this were relevant (para. 71):
[T]his element (the presence or absence of profit) is not a determinative criterion in this case. It is sufficient to note that the unit or property generated revenue to conclude that it was used for the purposes of producing rental income.