Des Groseillers concerns the tax treatment of donated employee stock options under Québec’s Loi sur les impôts, R.L.R.Q. c. I-3 (the “Québec Act”) and the extent to which provisions of general application apply to “complete codes” such as the stock option scheme.
The provisions at issue in Des Groseillers are articles 50, 54 and 422 of the Québec Act. Article 50 of the Québec Act provides that an employee who disposes of rights under a stock option agreement to an arm’s length party is deemed to receive a taxable employment benefit equal to the amount by which the value of the consideration for the disposition exceeds the amount paid to acquire the stock option. This provision is nearly identical to paragraph 7(1)(b) of the Income Tax Act (R.S.C. 1985, c. 1 (5th Supp.) (the “Federal Act”)). Article 54 of the Québec Act is similar to subsection 7(3)(a) of the Federal Act, and provides that an employee is deemed to receive no benefit “under or because of” a stock option agreement except as provided under the division of the Act related to stock option benefits.
Mr. Des Groseillers donated stock options granted under an employee stock option plan to registered charities with an approximate total fair market value (“FMV”) of $3,000,000. Mr. Des Groseillers received charitable tax receipts and claimed tax credits corresponding to the FMV of the donations. The Agence du revenue du Québec assessed Mr. Des Groseillers to include the FMV of the donated stock options as employment income on the basis that he was deemed to have received FMV consideration for the donation under article 422 of the Québec Act.
Article 422 of the Québec Act provides that the disposition of property by a taxpayer by way of gift is deemed to have been made at FMV. Its wording is substantially similar to paragraph 69(1)(b) of the Federal Act.
Mr. Des Groseillers appealed to the Court of Québec and took the position that, pursuant to article 54 of the Québec Act, the employee stock option provisions formed a complete code which ousted the application of article 422. The Court agreed with Mr. Des Groseillers and vacated the assessment. The Court further concluded that under the employee stock option provisions, there was no benefit because Mr. Des Groseillers received no consideration for the donation and did not pay anything to acquire the options. The Québec Court of Appeal allowed the appeal, holding that article 422 applied. In allowing the appeal, the Québec Court of Appeal relied on decisions interpreting sections 7 and 69 of the Federal Act, discussed above.
Given the strong similarities between the relevant provisions of the Québec Act and the Federal Act, the SCC’s analysis and conclusions in this case might be highly informative in interpreting the parallel provisions of the Federal Act.