Federal Appeal

Income Tax

Tax Court Judge did not err in analysis of deductibility of legal fees 


Tax Court Judge did not err in analysis of deductibility of legal fees 

In 1997, taxpayer's father died, leaving will naming taxpayer and taxpayer's siblings as residual beneficiaries of father's RRSP account. By will, father's spouse was principal beneficiary of RRSP account, on condition that spouse collapse RRSP into RRIF. Spouse did so, but taxpayer was of opinion that will restricted spouse to more conservative RRIF than that chosen by spouse. Taxpayer commenced proceeding for order to that effect, and Court of Appeal of province ultimately found in favour of spouse. Taxpayer then commenced allegedly distinct proceeding against financial institution for like remedy. Taxpayer subsequently deducted legal fees associated with proceeding against financial institution from his income from business or property on income tax return. Minister assessed taxpayer, disallowing deduction. Tax court dismissed taxpayer’s appeal, concluding that, pursuant to s. 18(1)(a) and (b) of Income Tax Act, legal fees expenses are deductible only if incurred for purpose of gaining or producing income from business or property. Court reasoned that fees incurred to recover “lost” residual-beneficiary value from father's estate was not matter in nature of business of taxpayer, and that if taxpayer’s purpose was to obtain greater entitlement to value of estate, that greater entitlement would be by its nature on account of capital rather than on account of income from property, and so, would be non-deductible. Taxpayer appealed. Appeal dismissed. Taxpayer failed to establish that court judge erred in his analysis of deductibility of legal fees. For same reasons as those given by judge, it could not be said that deduction claimed could be considered as having been incurred to earn income for purposes of s. 18(1)(a) and (b) of act. 
Deschênes c. R. (Jun. 17, 2015, F.C.A., Noël C.J., A.F. Scott J.A., and Boivin J.A., File No. A-398-14) Decision at 243 A.C.W.S. (3d) 754 was affirmed.  256 A.C.W.S. (3d) 482.



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