Chamandy – Court of Quebec finds that borrowings to acquire equity of a holding company that would use exempted profits of a CFA to fund only RoC payments had non-deductible interest

The taxpayer used the proceeds of a loan received from the National Bank of Canada pursuant to monetization transactions to form a Canadian holding company (“TOGI”) which, in turn, funded a newly-formed Barbados bank (“OBT”). OBT then generated substantial profits and gains from its investment portfolio that were exempted from Canadian income tax by virtue of exceptions to the application of the FAPI rules. TOGI over the course of the 2005 to 2014 taxation years used distributions out of the profits and gains derived from OBT to make paid-up capital distributions to the taxpayer totalling $118 million, which he used for personal purposes.

In finding that the taxpayer was not entitled to deduct his financing costs (primarily interest) of approximately $57 million incurred over those years in computing his income, Bourgeois JCQ stated:

The modus operandi followed by TOGI, namely the absence of dividend declarations to the plaintiff for nearly 10 years, clearly demonstrates that the latter could not have intended to derive non-exempt income from his investment in TOGI.

Neal Armstrong. Summary of Chamandy v. Agence du revenu du Québec, 2026 QCCQ 311 under s. 20(1)(c)(i).