In its ruling in Société en commandite Immoca immobilier c. Ville de Saint-Augustin-de-Desmaures¹, the Quebec Court of Appeal provides important clarification regarding the application of the exemption set out in section 18 of the Act respecting duties on transfers of immovables (the “Act”), particularly with respect to the interpretation of the concept of “related persons” and the impact of contractual rights in that analysis.
Background
In this case, the appellant, Société en commandite Immoca Immobilier (“Immoca”), made a payment under protest of real estate transfer duties in the amount of $95,948.50 to the City of Saint-Augustin-de-Desmaures following the transfer of an immovable owned by Société en commandite VeyLin (“VeyLin”), in the context of a hypothecary remedy by way of taking in payment.
Immoca argued that it qualified for the exemption provided under section 18 of the Act. This provision grants an exemption where four (4) cumulative conditions are met: (1) the transferee’s business consists in the lending of money on the security of real property; (2) the transfer results from the exercise of a right to take in payment or in any other manner aiming to extinguish a debt secured by real property or ensuring the protection of such security or of any claim; (3) the transferee must not be a person related to the transferor within the meaning of section 19 of the Taxation Act (Quebec) (“QTA”); and (4) the transferee did not acquire the land pursuant to a transaction made mainly to avoiding the payment of transfer duties.
The First Instance Decision: De Facto Control
At first instance², the Court of Québec concluded that Immoca met three (3) of the four (4) conditions of the exemption set out in section 18 of the Act, but failed to satisfy paragraph (b), namely the requirement that the transferee not be related to the transferor.
The Court found that, at the time of the transfer, Immoca exercised de facto control over VeyLin and its general partner. The evidence showed that the same individual directed the operations of both entities, signed documents on behalf of both, granted a hypothec from one entity to the other, and managed the judicial proceedings on both sides of the dispute. The judge essentially characterized the situation as a “from myself to myself” transaction.
According to the Court, this concentration of decision-making authority demonstrated that the two entities were in reality controlled by the same persons, rendering the exemption under section 18 of the Act inapplicable. The claim was therefore dismissed.
The Court of Appeal Decision: Refocusing on De Jure Control and Section 20 QTA
On appeal, the Court reached the same conclusion, but through a different analytical framework.
The Court of Appeal confirmed that the requirement under section 18(b) of the Act was not met: Immoca and VeyLin were related persons at the time of the transfer. However, it refocused the analysis on the legal framework governing corporate control.
While the trial court had emphasized de facto control, the Court of Appeal recalled that the Canadian standard for determining control under section 19 QTA is de jure control — that is, the legal ability to elect the majority of the board of directors — in accordance with the Supreme Court’s decision in Duha Printers (Western) Ltd. v. Canada³.
The key contribution of the decision lies in its interpretation of sections 19 and 20 QTA together. The Court clarified that section 20 forms an integral part of the mechanism for applying section 19. It is not an independent or indirect reference; rather, section 20 expressly serves to determine who controls a corporation.
Section 20 provides that a person who has, under a contract or otherwise, an immediate or future right — conditional or not — to acquire shares or control voting rights is deemed to occupy the same position with respect to control as if that person were the actual owner of the shares at that time.
Accordingly, the legislature has broadened the de jure control analysis to include not only corporate documentation, but also existing legal and contractual rights.
The Determining Factor: The Conversion Clause
In this case, the loan agreement between Immoca and VeyLin provided that, in the event of default, Immoca could convert its debt into partnership units of VeyLin and simultaneously acquire shares of its general partner.
Although this right was never exercised, it granted Immoca a legal potential to obtain control. Under section 20 QTA, such a future right is sufficient to establish deemed de jure control.
The Court of Appeal therefore concluded that, at the time of the transfer, Immoca held a contractual right sufficient to be deemed to control VeyLin. The entities were related persons within the meaning of section 19 QTA, which precluded the application of the exemption under section 18 of the Act.
Conclusion: A Structural Reminder for Lenders
This decision does not amend the legislation, but it significantly clarifies its scope. It confirms that the relevant control for the purposes of section 19 QTA remains de jure control. However, such control includes contractual rights captured by section 20 QTA — a simple future or conditional right to acquire shares may suffice to create a legal relationship of control. For lenders, the decision serves as a reminder that certain clauses — particularly conversion mechanisms or rights of acquisition in the event of default — may carry unintended consequences.
February 12, 2025
By: Audrey Robitaille, Partner, and Louisa Kouretas, Student
¹ 2025 QCCA 1117.
² Société en commandite Immoca immobilier c. Ville de Saint-Augustin-de-Desmaures, 2024 QCCQ 637.
³ [1998] 1 R.C.S. 795, par. 36.