Tax Consequences Of Rental Property Conversions

Case Comment on Sura c. Agence du revenu du Québec, 2025 QCCQ 1127 ("Sura")

The Court of Quebec—which hears tax appeals under Quebec's income tax legislation—recently considered the tax consequences resulting from converting multi-unit rental properties into condominiums for sale. Quebec generally follows the Canada Revenue Agency ("CRA")'s published guidance on characterising gains from the disposition of real property, including in particular Income Tax Bulletin IT-218R,¹ making the decision potentially of interest across Canada.

The Court essentially held that:

• contrary to what may be suggested at paragraph 13 of IT-218R ("Paragraph 13"), a conversion does not, in an of itself, represent a "change of use" of the property from capital property to inventory; and