Charitable donations and tax deduction | A defeat at 1.5 million for the controlling shareholder of Brault & Martineau

The controlling shareholder of the Brault & Martineau stores, Yves Des Groseillers, loses a showdown with the tax authorities – which will cost him at least 1.5 million – in a cause where charitable donations and taxation overlap. Revenu Québec is already analyzing the scope of this decision by the highest court in the country.

Two donations of stock options made in 2010 and 2011 worth 3 million were at the heart of the dispute. Mr. Des Groseillers had claimed tax credits corresponding to the market value of the options paid. Having not exercised the purchase options in question, the businessman alleged that these sums should not be considered as taxable employment income.

“It’s wanting the butter and the money in the butter,” says associate professor of tax law at Université Laval André Lareau. It is absurd. This is ultra-aggressive tax planning. To me, that comes close to tax avoidance. The market value of options is not reported. On the other hand, we do not forget to claim the tax credit on donations. »

Arrested, the Supreme Court of Canada unanimously rejected Mr. Des Groseillers’ appeal last Thursday.

Its seven judges on the record conclude that the Quebec Court of Appeal, in a decision rendered in June 2021, correctly interpreted the Quebec Taxation Act. Thus, stock options given to charities are considered employment income.

Also a professor of tax law at Laval University, Khashayar Haghgouyan does not go as far as his colleague. He does not qualify Mr. Des Groseillers’ strategy as “aggressive planning”. However, the expert believes that “common sense prevailed”.

“It is rare for the Supreme Court to render such a laconic judgment,” underlines Mr. Haghgouyan. They [les juges] praise the Court of Appeal by repeating it word for word. It’s quite unusual. »

It was not possible to obtain a reaction from Mr. Des Groseillers on Tuesday.

years in court

A stock purchase option notably allows a person to buy, at a pre-established price, shares of the company for which he works. Mr. Des Groseillers benefited from this plan when he headed Groupe ATBM, which oversees Brault & Martineau and Ameublement Tanguay. This company merged with BMTC in 2015, and this is the name it officially bears today.

The manager is now chairman of the entity’s board of directors.

The latter had given his options on his shares to the University of Montreal, the Fondation Maman Dion, the Fondation Céline Dion and the Fondation du CHUM in 2010 and 2011. The tax dispute broke out following two notices contributions sent by Revenu Québec in 2015 and 2016.

Mr. Des Groseillers won his case before the Court of Quebec. The court sided with his arguments, concluding that he had received no money in exchange for his stock options. However, this decision was overturned by the Quebec Court of Appeal, which considered that the trial judge’s interpretation was “erroneous”.

Since the articles of the tax law are “clear”, the “trial judge had to limit himself to applying them”. An employee who donates his property or a right to purchase shares “shall be deemed” to have received the market value of the donation in question, according to section 50 of the law.

“The conclusion is that in tax matters, you have to read the law as a whole,” says Mr. Haghgouyan. Here, we made a fragmented reading. »

Other complaints?

It was not possible, Monday, to know how many tax disputes concerning donations to charities were on the radar screen of the Quebec tax authorities.

“Revenu Québec is very satisfied that its position has been adopted by the Supreme Court of Canada and the Court of Appeal and will take the time to analyze this decision to measure the impact on its other cases,” said its spokesperson. , Claude-Olivier Fagnant, in an email.

Professor Lareau recognizes that the authorities now have a free hand if other situations of the kind occur. It remains to be seen whether the tax authorities will be able to pin down the culprits.

“It’s a game of hide and seek,” says the expert. It is certain that for the taxpayers who gave more than 1 million, Revenu Québec must be more on the lookout. But are there any who have managed to use this ploy without being discovered? I do not know. »

The combined tax rate (Quebec and federal) is 53.31% for the taxable income bracket that exceeds $216,511. Excluding benefits such as stock-based awards and his pension plan, Mr. Des Groseillers was entitled to cash compensation of $607,000 in 2011 and $605,750 the previous year.