Executive Summary: Key Legal and Evidentiary Issues

• Raphael Ederhy, a real estate businessman, challenged tax assessments issued outside the statutory limitation period for the 2010–2014 tax years by the Agence du revenu du Québec (ARQ).
• Central to the dispute was whether a transfer of $4,473,121 (CAD) — equivalent to $4,475,000 USD — from Gestion Services Immobiliers Blyda inc. to Ederhy in 2012 constituted a taxable misappropriation of funds.
• Ederhy argued the transfer was a reimbursement for advances he had made to Blyda through various American Limited Liability Companies, but failed to produce supporting documentary evidence.
• Issuing reassessments beyond the normal limitation period required the ARQ to establish a misrepresentation attributable to neglect or wilful omission under subparagraph 1010(2)(b)(i) of the Loi sur les impôts.
• Once the ARQ established misrepresentation through circumstantial evidence, the burden shifted to Ederhy to demonstrate, on a prima facie basis, that the reassessment was incorrect.
• All three grounds of appeal — procedural error in the two-step prescription test, improper demand for corroborating evidence, and palpable and overriding errors in fact-finding — were dismissed by the Court of Appeal.

Facts of the case

Raphael Ederhy is a businessman active in the real estate market. He personally owns rental properties and is a shareholder and director of several companies, including Gestion Services Immobiliers Blyda inc. ("Blyda"). Upon learning that Ederhy had held a bank account at HSBC Private in Switzerland, the Agence du revenu du Québec ("ARQ") initiated an audit. As a result of that audit, the ARQ attributed to Ederhy additional taxable income of $4,473,121 (equivalent to $4,475,000 USD) as a misappropriation of funds for the 2012 tax year. According to the auditor's report, Ederhy received this amount on October 12, 2012, into his personal investment account, transferred from Blyda's investment account.

Ederhy disputed this characterization, arguing that the transfer represented repayment for advances he had made to Blyda between 2010 and 2012. He contended that these advances were routed through various American Limited Liability Companies ("LLCs") held by Société Group Consulting International ("GCI"), of which he claimed to be a shareholder. In his account, he acted merely as a conduit because Blyda, which sought to invest in real estate assets, could not transfer funds directly to those American entities. The auditor rejected this explanation for lack of evidence, and the Quebec Court judge (the Honourable Gilles Lareau) likewise dismissed it in a decision rendered on May 20, 2025, finding that Ederhy had made a misrepresentation and rejecting his challenge to the assessment on that point. The lower court had, however, granted only partial relief on other aspects of Ederhy's challenge to the out-of-time assessments for the 2010–2014 tax years. Ederhy then appealed to the Quebec Court of Appeal.

Statutory provisions at issue

The core statutory question concerned the ARQ's authority to reassess outside the normal limitation period. Under subparagraph 1010(2)(b)(i) of the Loi sur les impôts (RLRQ, c. I-3), the ARQ may issue an out-of-time reassessment if it establishes, first, that the taxpayer made a misrepresentation and, second, that the misrepresentation resulted from neglect or wilful omission. Article 1011 of the same statute further requires that the omission flow directly from the misrepresentation. These provisions set the framework for all three grounds of appeal raised by Ederhy.

Court's reasoning and analysis

Ederhy raised three grounds of appeal. On the first, he argued that the trial judge failed to apply the two-step test under subparagraph 1010(2)(b)(i), and instead inferred a "systemic misrepresentation" from the fact that Ederhy had failed to declare certain rental or dividend income — improperly extending that inference to cover the misappropriation of funds. The Court of Appeal rejected this argument. It affirmed that, even where prescription is a preliminary issue, a judge may consider the totality of the evidence. In this case, the trial judge found misrepresentation through circumstantial evidence, drawing inferences from the fact of the $4,473,121 transfer from Blyda to Ederhy, the absence of accounting entries in Blyda's financial statements supporting the repayment-of-advances theory, and Ederhy's refusal to produce certain documents requested by the auditor. Once that circumstantial foundation was established, the burden shifted to Ederhy to demonstrate, on a prima facie basis, that the reassessment was incorrect — for example, by producing evidence of his alleged shareholding in GCI, documents showing real estate purchases by the LLCs, proof that Blyda was unable to transfer funds directly to the LLCs, or records of his own transfers to those entities. Having failed to do so, it was reasonable for the trial judge to reject his theory, find misrepresentation, and conclude that the amount was taxable.

On the second ground, Ederhy contended that the trial judge erred in law by requiring corroborating evidence for his testimony. The Court of Appeal dismissed this as a continuation of the first ground. The trial judge disbelieved Ederhy's testimony because it was inconsistent with the accounting records, and because documents that would have existed if his account were true — such as evidence of his shareholding in GCI or deeds for properties allegedly purchased by the LLCs — were absent. The judge treated that absence not as a legal deficiency but as a relevant indicator of credibility. The Court found no reviewable error in this approach.

On the third ground, Ederhy alleged palpable and overriding errors in the trial judge's finding that there was no evidence of the LLCs' existence or of any links between the LLCs, Ederhy, and Blyda. The Court of Appeal acknowledged that this finding was somewhat overstated, as certain elements in the auditor's report did support the existence of the LLCs. However, the Court held that this error was not, in itself, determinative. It noted that Ederhy was essentially asking the Court of Appeal to re-weigh the evidence in place of the trial judge, which falls outside its appellate role. In the absence of a palpable and overriding error, this ground also failed.

Ruling and overall outcome

The Quebec Court of Appeal, composed of Justices Suzanne Gagné, Patrick Healy, and Benoît Moore, dismissed the appeal in its entirety on June 12, 2026, with costs awarded against Ederhy. The ARQ was the successful party. The Court upheld the reassessment attributing $4,473,121 (equivalent to $4,475,000 USD) in additional taxable income to Ederhy for the 2012 tax year as a misappropriation of funds. The precise quantum of costs was not specified in the judgment.