Executive Summary: Key Legal and Evidentiary Issues

• The central question was whether the Fiducie Famille Champoux and Alain Champoux made false representations in their 2014 tax returns, thereby allowing the ARQ to reassess them outside the normal reassessment period.
• At issue was whether the trust's attribution of an $800,000 capital gain to Karine Levert constituted a sham (trompe-l'œil), with M. Champoux as the true beneficiary.
• Establishing a sham requires proof of an intent to deceive the tax authority — specifically, that the taxpayer said one thing while doing another.
• The ARQ argued that Mme Levert acted merely as an accommodator for M. Champoux, and that the real benefit of the $800,000 flowed to him alone.
• Evidence of the couple's longstanding joint-account arrangement and pooled-income practice undermined the ARQ's theory that the funds were used exclusively for M. Champoux's benefit.
• Penalties under article 1049 of the Loi sur les impôts were also at issue and were ultimately disallowed.

Facts of the case

Fiducie Famille Champoux is a discretionary family trust in which Alain Champoux serves as one of three trustees and is its driving force. The trust was established in 2012 as part of a tax planning structure put in place by M. Champoux and co-shareholders of Énergère Consultants inc. ("Énergère"), a company in which they held indirect shareholdings through their respective management corporations. The planning was designed to allow for income-splitting among family members should a liquidity event occur within Énergère.

On September 9, 2014, an investment fund acquired a stake in Énergère. Through a series of tax rollovers, the Fiducie realized a capital gain of $949,922.76. For the 2014 taxation year, the Fiducie declared a taxable capital gain of $474,961.38, which it attributed among its beneficiaries as follows: $399,961.38 to Karine Levert (M. Champoux's spouse and one of the named beneficiaries under the trust deed); $50,000 to M. Champoux's mother; and $12,500 to each of M. Champoux's two sons with Mme Levert. Separately, M. Champoux personally realized and declared a capital gain of $246,950 from the same transaction. The ARQ did not challenge the attributions to the mother or the sons. Its reassessments, issued in the fall of 2023 — the Fiducie's dated October 24, 2023, and M. Champoux's dated November 9, 2023 — were directed solely at the attribution to Mme Levert, which the ARQ characterized as a sham designed to allow M. Champoux to benefit from $800,000 that should have been taxed in his hands.

Statutory and legal framework

The ARQ's authority to reassess outside the normal reassessment period rested on article 1010(2)(b)(i) of the Loi sur les impôts ("LI"), which permits the Minister to reassess "at any time" if the taxpayer "made a misrepresentation of facts through neglect or voluntary omission or committed fraud in filing the return or in providing information." The ARQ did not allege fraud; it relied solely on misrepresentation through neglect or voluntary omission. The ARQ also sought penalties under article 1049 LI.

The concept of a sham (trompe-l'œil) in Quebec tax law — grounded in the simulation provisions of article 1451 of the Code civil du Québec — requires proof of an intent to deceive the tax authority. As articulated in Kone inc. c. Agence du revenu du Québec (2022 QCCQ 9892, confirmed on appeal in 2024 QCCA 678), a sham exists where "the documentary evidence shows that the taxpayer says one thing, while in fact doing another." The mere presence of a transaction lacking commercial purpose beyond a tax benefit is insufficient to establish a sham; an intent to deceive is required.

Court's reasoning and analysis

The court found that the ARQ failed to establish, on a balance of probabilities, that the $800,000 attribution to Mme Levert was a sham. The court's analysis centered on the genuine and longstanding financial arrangement between Mme Levert and M. Champoux, which pre-dated the 2014 attribution and continued well after it.

The couple began living together in 2008 and immediately opened a joint bank account used for all personal and family expenses, including a joint credit card. They married in 2010 under the regime of separation of property. After the birth of their first child in 2011, Mme Levert stayed home to care for the children while M. Champoux worked. The court accepted that the couple operated as a single family and economic unit, each contributing according to their means — an arrangement the court noted is consistent with article 396 of the Code civil du Québec. Their family residences were always held jointly in equal shares, even when the acquisition funds came predominantly from M. Champoux.

In September 2014, both the $246,950 personal gain realized by M. Champoux and the $800,000 attributed to Mme Levert were deposited into the joint account and used to pay down the family's shared debts, including a joint hypothecary line of credit and the family home mortgage. On December 5, 2014, Mme Levert deposited $267,819.75 into the joint account from the sale of publicly listed shares held in her name alone, and $200,000 of those funds were used to purchase a chalet in the Ripon area registered solely in her name.

The court observed that Mme Levert was an intelligent, independent adult fully capable of understanding and discussing financial transactions. The decision to deposit the $800,000 into the joint account was consistent with the couple's established practice of pooling income. The ARQ's theory — that a temporary transfer of $790,000 from the joint account to M. Champoux's personal account on September 18, 2014 demonstrated that he alone controlled the funds — was rejected. The court found that those funds were promptly returned to the joint account and used for the mortgage and family debts that belonged to both spouses equally. The court distinguished the present facts from those in Antle, Laplante, and Caplan, where clear evidence of mandates, endorsements, or diversion of funds to the settlor had been found.

On penalties, the court held that even if a sham had been found, the circumstances — including the couple's sincere belief in the legality of their arrangements, their efforts to reconstruct documentary evidence across a lengthy time gap, and the absence of flagrant negligence — would have warranted refusal of the penalties under the criteria set out in Saint-Georges c. le Sous-ministre du Revenu (2007 QCCA 1442).

Ruling and overall outcome

The court allowed the appeals in both dossiers. The reassessment of October 24, 2023 issued against the Fiducie Famille Champoux for the 2014 taxation year was annulled. The reassessments of November 9, 2023 issued against M. Alain Champoux for taxation years 2014, 2015, and 2016 were likewise annulled. Both appellants — the Fiducie Famille Champoux and Alain Champoux — were entirely successful, with costs awarded in their favor. No specific monetary quantum was stated in the judgment as the amount of the awards or costs.