Essaris Estate – Court of Quebec vacates gross negligence penalties imposed for treating condo business profits allocated to the taxpayer as capital gains

The taxpayer transferred vacant land, on a rollover basis under s. 73(1) and the Quebec equivalent, to a trust which, in turn, transferred the land on a rollover basis to a newly formed condominium development limited partnership (SEC) with a third party in consideration for a 50% limited partnership interest.

Although SEC reported the proceeds from condominium sales as business profits, the taxpayer treated his share of such profits (allocated to him via the trust) as capital gains. Choquette JCQ affirmed the ARQ reassessments to treat the amounts as ordinary income to the taxpayer, but vacated the gross negligence penalties on the basis that the ARQ had not demonstrated the high degree of negligence required to sustain such penalties.

Neal Armstrong. Summary of Succession de Essaris v. ARQ, 2025 QCCQ 8065 under s. 163(2).