Executive Summary: Key Legal and Evidentiary Issues

• Jurisdiction of the Cour du Québec to hear contestations of tax assessments following a notice of non-receivability by the Agence du revenu du Québec (ARQ).

• Application of the doctrine of res judicata (chose jugée) regarding previous appellate decisions on similar tax disputes between the same parties.

• Determination of whether payroll and input tax credits (RTI) should be granted for services actually rendered by third-party agencies.

• Assessment of whether the ARQ properly accounted for services of payroll management versus taxable salary in its new tax assessments.

• Evaluation of the procedural rights of taxpayers to challenge new assessments issued after a final court judgment.

• Consideration of whether administrative discretion was properly exercised by the ARQ in refusing the oppositions.

Facts and outcome of the case

Background and facts

9088-0964 Québec inc. and Placements L.G. inc. are two related entities that, between 2007 and 2010, provided legal and paralegal services and employed several individuals. During this period, they entered into service agreements with various companies from the Groupe Ratelle, referred to as the Agencies. Under these agreements, the Agencies managed payroll, paid employees directly, and acted as staffing agencies. The Agencies invoiced 9088 and PLG for salaries, payroll deductions, employer contributions, and applicable Quebec sales tax (TVQ).

In 2010, 9088 and PLG learned that the Agencies were under investigation for fraud and terminated their agreements. It was later discovered that the Agencies had similar arrangements with other clients and failed to remit payroll deductions, employer contributions, and sales taxes to the authorities. As a result, in 2014 and 2015, the Agence du revenu du Québec (ARQ) issued tax assessments against 9088 and PLG to recover unpaid payroll deductions, employer contributions, and to deny input tax credits (RTI) claimed for sales tax paid to the Agencies. Penalties and interest were also assessed.

9088 and PLG contested these assessments, leading to a series of court proceedings. In 2020, the Cour du Québec ruled that the Agencies were not the true employers, but annulled some assessments and referred others back to the Minister for reconsideration. Both sides appealed, and in 2023, the Court of Appeal confirmed that 9088 and PLG were responsible for payroll deductions and employer contributions, but also recognized that payroll management services were rendered by the Agencies.

Following the appellate decision, the ARQ issued new assessments in December 2023. 9088 and PLG filed oppositions in March 2024, arguing that the new assessments did not properly reflect the appellate judgment, particularly regarding the payroll services actually provided. The ARQ rejected these oppositions as non-receivable, claiming the issues were already decided or not subject to further review.

Outcome of the case

9088 and PLG brought their contestations before the Cour du Québec, seeking to annul or modify the new assessments, or alternatively, to have the assessments referred back to the ARQ for proper recalculation, including recognition of payroll services and corresponding input tax credits. The ARQ responded with motions to dismiss, arguing lack of jurisdiction and res judicata.

The court rejected the ARQ’s motions to dismiss. It found that the Cour du Québec had jurisdiction to hear the contestations, as the taxpayers had followed the required procedural steps. The court also determined that the doctrine of res judicata did not clearly bar the new contestations, as the precise issues regarding the calculation of payroll services and input tax credits had not been fully resolved in the prior appellate judgment. The court emphasized that a full hearing on the merits was necessary to resolve these outstanding factual and legal questions.

As a result, the court allowed the contestations to proceed and extended the deadline for the ARQ to file its written defences by thirty days. Judicial costs were awarded, but no damages were granted at this stage, as the decision addressed only preliminary procedural matters and not the substantive merits of the tax dispute.