Transfer of Corporate Assets to a Shareholder's Child

A January 5, 2026 Court of Quebec case considered the tax consequences when a corporation sold a cottage to the shareholder's sons for substantially less than its construction cost.

The corporation had constructed the cottage for approximately $1.25 million and sold it to the shareholder's sons for $700,000.

Following an audit, Revenu Québec denied a corporate capital loss of approximately $406,934 and assessed a taxable shareholder benefit of approximately $536,759.

Was the Cottage Really an Investment?

The corporation argued that the property had been held as an investment.

However, the court focused on the property's actual predominant use rather than the stated investment intention.

Evidence supporting personal use included:

• Utility and cable bills being placed in the spouses' names.
• Insurance being changed from corporate to personal names.
• The property being described as a secondary residence.
• Reports referring to it as a future family residence.
• Very little evidence supporting meaningful use as a rental investment.

Corporation Loses: Capital Loss Denied

The court concluded that the cottage was primarily used for the personal enjoyment of the shareholder and family.

It was therefore considered personal-use property, meaning that the corporation's capital loss was denied.

Shareholder Loses: Taxable Benefit

The corporation financed and constructed the property and then transferred it to related parties for significantly less than cost.

The court concluded that this was not a transaction that would normally occur between arm's-length parties.

The shareholder attempted to support the $700,000 transfer value using an appraisal. However, the court was not persuaded by the evidence.

The property had previously been listed for approximately $1.175 million and was later sold by the sons in 2022 for approximately $1.775 million.

The court ultimately accepted Revenu Québec's calculation of the shareholder benefit based on the difference between construction cost and the transfer price.

Action: When transferring corporate assets to a shareholder or family member, ensure the transaction occurs at an appropriate value and that reliable evidence supports the valuation.