CILI – Court of Quebec finds that the satisfaction of a resolutory sales condition nullified the original sale so that reconveyance of the realty to the vendor was not a supply

Two individuals, who wished to acquire a condo unit in a building (“265”) which was still under construction by the taxpayer (“CILI”), agreed with CILI to acquire another unit in an already completed building (“260”) and move there on condition that, when the 265 unit became available, they would acquire the 265 unit at no loss, if a purchaser had not been found for the 260 unit by a specified date. When that date arrived, and the 260 unit had not yet been sold, CILI, and the two individuals, entered into a “deed of retrocession” pursuant to which the original sale was annulled, the purchase price returned to them, and they acquired the 265 unit from CILI.

CILI also entered into a somewhat similar transaction with the son of its principal. In order to meet a bank-imposed sales target, CILI sold the development’s model condo suite to him for rental by him back to it, on the condition that CILI would take back the unit from him once a third-party purchaser had been secured. When this “resolutory” condition was satisfied, the unit was returned to CILI pursuant to a deed or retrocession, and the purchase price refunded.

On both sales, CILI collected the applicable QST, refunded such QST on the retrocession, and claimed a credit for such refunded tax pursuant to the Quebec equivalent of ETA s. 232, which the ARQ refused on the grounds that the retrocessions represented second taxable supplies of the two units, rather than evidencing annulments of the previous sales.

Before allowing CILI’s appeal, Fournier JCQ found that under the Quebec Civil Code:

A resolutory condition has the effect of destroying the contractual link existing between the parties by extinguishing it as if it had never existed. …

Thus, the return of the unit in each case was to reflect that the original taxable supply was nullified, rather than representing a further taxable supply, so that the application of the s. 332 equivalent was confirmed.

Neal Armstrong. Summary of Corporation immobilière des Laurentides Inc. v. Agence du revenu du Québec, 2024 QCCQ 5297 under ETA s. 232(1).