Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether legal fees for litigation where GCA Immobilier was not a named party could still be deducted as business expenses under art. 128 L.I.
• Extent of the taxpayer’s initial burden to rebut the presumption of validity of tax assessments and what counts as sufficient prima facie evidence in tax cases.
• Economic and reputational link between the Bouvier–Lachance litigation and GCA Immobilier’s role and revenue stream within the Groupe Lachance real-estate projects.
• Strong, detailed testimony from GCA Immobilier’s finance vice-president contrasted with the incomplete, inconsistent evidence of the auditor and opposition officer.
• Application of the “reasonable businessperson” test to characterize the legal fees as commercial expenses, not personal or shareholder expenses.
• Consequences for loss carryforwards from 2017–2018 and their use to reduce income in 2020.

Facts of the case

9329-5871 Québec inc., doing business as GCA Immobilier, is part of Groupe Lachance, a Montréal-based real-estate group controlled by developer Claude Lachance. GCA Immobilier’s function is to identify projects, perform feasibility and budget analyses, liaise with lenders and structure developments. It typically earns income only when project entities complete condo projects and sell units, at which point GCA Immobilier invoices them for its earlier development work.
The background dispute involved two Griffintown condo projects: Le Murray (phases 1–2) and the adjacent project Le Wellington (phase 3). The company 9245-2366 Québec inc. (“2366”) developed Le Murray; its shareholders were GCA-Murray S.E.C. (linked to Groupe Lachance) and Groupe Isocan inc., owned by Éric Bouvier. After Le Murray, Groupe Lachance independently developed Le Wellington, without Bouvier or Isocan.
Bouvier alleged that Le Murray’s plans, specifications, promotion and branding were illicitly used to benefit Le Wellington. He sued in Superior Court seeking, among other remedies, the removal of Lachance as a director of 2366 and permission for 2366 to bring a derivative action against Lachance, several Groupe Lachance companies (including GCA Immobilier’s predecessor GCA Créateurs Immobiliers Inc.), project corporations involved in Le Wellington, key employees, and third-party partners such as the lender, architect and brokers. The Superior Court judge Tremblay authorized the derivative action, and Lachance obtained leave to appeal; the matter settled before any derivative claim was formally filed.
Although GCA Immobilier was not named as a party, it paid legal fees to De Grandpré Chait to fund the defence strategy and subsequent settlement. It deducted these fees as business expenses in 2017 and 2018 and, since it had net business losses in those years, carried the losses forward to 2020.

Legal framework and issues

Under article 1014 of Québec’s Loi sur les impôts (L.I.), tax assessments are presumed valid. The taxpayer must first show that the factual assumptions underlying the reassessment are incorrect; if a credible prima facie case is made, the evidentiary burden shifts to the tax authority to justify its position on a balance of probabilities.
Article 128 L.I. governs deductibility: only expenses that can reasonably be considered to relate to the business and that were incurred to earn income are deductible, subject to specific statutory limits. The Court relied on established jurisprudence to affirm three conditions: (1) the expense must relate reasonably to the business; (2) there must be an objective logical link to the goal of earning income or protecting the capacity to earn income; and (3) the expense must have been paid or be legally payable. A strict “direct revenue” link is not required; modern case law accepts broader business-protection expenses, including those tied to reputation, shareholder relations or future income.

Evidence and credibility

GCA Immobilier’s vice-president finance, Jean-Louis Berthet, testified that the company had taken over feasibility and budgeting for projects such as Le Murray and Le Wellington, and that it only billed project entities (including those behind Le Wellington) once units were sold. He explained that the threatened derivative action was in substance a broad attack on the Wellington project ecosystem: group companies, key managers and important partners such as the lender, architect and brokers.
Berthet testified that GCA Immobilier had a clear business interest in funding the legal defence: to prevent the derivative action from proceeding, to protect the reputation of the Wellington project and the “GCA Immobilier” brand, to reassure partners, and to preserve the project’s financial viability so that Wellington entities could pay GCA Immobilier when the project closed. Documents demonstrated that, after the litigation ended, GCA Immobilier invoiced and was paid by Wellington project entities for its services, supporting his account of the revenue model.
The Agence du revenu du Québec (ARQ) offered evidence from an auditor and an opposition officer. The Court found both witnesses had a weak grasp of the underlying litigation and the group’s structure. The auditor mis-described key procedural steps, focused narrowly on the fact that GCA Immobilier’s name did not appear as a party, and relied on an incomplete corporate organigram she had not validated. She also claimed pandemic-related limits on communication as a reason for not seeking clarifications, although the file showed she had received detailed explanations from GCA’s counsel and from Berthet.
The opposition officer largely repeated the auditor’s approach, reading invoice descriptions and judgments and conducting a superficial online search under the corporation’s number instead of “GCA Immobilier”. In his own earlier internal notes he had recognized some economic link to Le Wellington but later retreated from that position at trial, admitting he had not examined other group entities’ roles or income sources.

Court’s analysis and outcome

The Cour du Québec held that GCA Immobilier had supplied clear, credible and detailed evidence showing that the reassessments were based on incomplete or inaccurate assumptions. The company established that the legal fees paid to De Grandpré Chait related to the Bouvier–Lachance proceedings, that the threatened derivative action would have directly affected the Wellington project and its key participants, and that GCA Immobilier’s revenue ultimately depended on the successful, reputationally intact completion of that project.
Once GCA Immobilier had made out a prima facie case, the evidentiary burden shifted. ARQ failed to discharge it: the Court found the auditor’s and officer’s analyses superficial, based on misunderstood judgments and flawed corporate mapping, and insufficient to undermine Berthet’s testimony.
Applying article 128 L.I. and the reasonable businessperson standard, the Court concluded it was commercially reasonable for GCA Immobilier to incur these legal fees to protect its income-earning capacity and reputation, even though it was not a named party. The expenses were therefore deductible business expenses: 170,461.07 $ for 2017 and 90,413.04 $ for 2018. Consequently, GCA Immobilier was also entitled to carry forward the resulting business losses from 2017 and 2018 to reduce its 2020 taxable income.
The Court allowed GCA Immobilier’s appeal, annulled the reassessments for 2017, 2018 and 2020, and remitted the matter to the Minister for new reassessments consistent with the judgment. It ordered costs against the Agence du revenu du Québec. The successful party is 9329-5871 Québec inc. (GCA Immobilier). The decision confirms the deductibility of a total of 260,874.11 $ in legal fees for tax purposes, but the judgment does not state the exact tax savings, refund amount or quantified costs; the total monetary amount effectively obtained in favour of GCA Immobilier cannot be determined from the decision.