In Agence du revenu du Québec c Custeau, 2020 QCCA 1496, the Court considered whether PUC shift and a subsequent reduction of that PUC were part of the same series of transactions such that the Quebec GAAR would apply to the reduction. In 1998, the shareholder-brothers invested only $55,000 each in a corporation, but an investment by an arm’s length entity that occurred at the same time increased the PUC of their shares to $723,025 each. In 2003-2004, the brothers transferred their shares to holding corporations and increased the cost of their shares using the capital gain exemption. In 2006, the holdings corporations paid $555,000 to each brother as a tax-free return of capital.
The Quebec Court of Appeal upheld the lower court decisions, which found that the investment in 1998 did not contemplate the subsequent PUC reduction so that the latter was not part of the same series of transactions as the 1998 investment. The Court did not accept the Quebec Revenue Agency’s contention that the series should be considered backward from the point of view of the 2006 transactions.
Apparently the Quebec Revenue Agency is seeking leave to appeal to the Supreme Court.
Éric Hamelin “Quebec Court of Appeal Considers ‘Series of Transactions’ in GAAR Appeal” Tax for the Owner-Manager 21:2 (April 2021)
