Citation: 2012TCC233
Date: 20120629
Docket: 2011-2111(IT)I
BETWEEN:
MICHAEL J. CARUSO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
The Appellant is a
professional hockey player. The issue in this appeal is whether the Appellant
is entitled to deduct, in computing his income from employment for 2008, the
amount of $2,927.64 paid by the Appellant to MFIVE SPORTS in 2008, for services
rendered in negotiating the Appellant’s contract with the Florida Panthers
Hockey Club, Ltd. (the “Florida Panthers”).
[2]
In 2006 the Appellant
and his father entered into a contract with AKT Sports Management Consultants
Inc. (which later became MFIVE SPORTS). The Appellant signed the contract on
his 18th birthday. Paragraph 2 of this Agreement provides that:
2. Services
The Agent is hereby retained by the Player to represent, advise,
counsel, and assist Player:
(1)
in conducting individual compensation negotiations
for the Player’s services with the Player’s NHL club; and
(2)
in maintaining and enforcing the Player’s rights
following execution of a contract with the Player’s NHL club.
In performing these services, the Agent agrees to
perform in such a manner so as to ensure the effective representation of the
Player and to at all times protect the best interests of the Player. The Agent
further agrees to comply fully with the Regulations.
It is understood and agreed that the Agent shall not
have the authority to bind or commit the Player in any manner without prior
written consent of the Player. In no event shall the Agent execute a Player
contract for, or on behalf of, the Player.
[3]
On May 28, 2008 the
Appellant signed a three year contract with the Florida Panthers. The fee
payable by the Appellant to his agent was 3.5% of his signing bonus instalment
(on signing) and minimum 2008-2009 salary (Minors), which was 3.5% of $74,750
(U.S.) = $2,616.25 (U.S.) (which is $2,927.64 (Cdn)). The issue is whether this
payment of the agent’s fee is deductible in determining the Appellant’s income
from employment in 2008.
[4]
Subsection 8(2) of the Income
Tax Act (the “Act”) provides as follows:
(2) Except as permitted by this section, no deductions shall be made
in computing a taxpayer’s income for a taxation year from an office or
employment.
[5]
Therefore the amount
paid by the Appellant will only be deductible in computing his income from
employment if there is a specific provision of the Act that permits such
a deduction to be made. The Appellant argued that the deduction of the amount
was permitted either under paragraph 8(1)(b) of the Act or
subsection 8(5) of the Act.
[6]
Paragraph 8(1)(b)
of the Act provides as follows:
8. (1) In computing a taxpayer’s income for a taxation year from an
office or employment, there may be deducted such of the following amounts as
are wholly applicable to that source or such part of the following amounts as
may reasonably be regarded as applicable thereto:
…
(b) amounts paid by the taxpayer in the year as or on account
of legal expenses incurred by the taxpayer to collect or establish a right to
salary or wages owed to the taxpayer by the employer or former employer of the
taxpayer;
[7]
In order to be
deductible under this paragraph the amount must be paid for legal services and
those legal services must be services rendered “to collect or establish a right
to salary or wages owed to the taxpayer”. In this case the services rendered by
the agent were the services in negotiating the contract that was entered into
between the Appellant and the Florida Panthers. When the Appellant was asked
about the services provided by the agent, he referred to the additional $60,000
in signing bonuses that the agent was able to obtain for him.
[8]
The Player–Agent Contract
was between the Appellant and AKT Sports Management Consultants Inc. While the
Appellant’s father stated that Anton Thun (who signed the contract as the guarantor)
was a lawyer, there was no indication whether the corporation AKT Sports
Management Consultants Inc. was authorized to practice law. The services
provided by AKT Sports Management Consultants Inc. (or MFIVE SPORTS) and for
which payment was made, were, as described in paragraph 2(1) of the
Player-Agent Contract. The agent (AKT Sports Management Consultants Inc.)
represented and assisted the Appellant in negotiating his individual
compensation (and in particular his signing bonus) payable by the Florida
Panthers.
[9]
To the extent that any
of the services provided by AKT Sports Management Consultants Inc. (or MFIVE
SPORTS) could be regarded as legal services, the services were not to collect
salary or wages owed to the Appellant (the services were rendered before any
contract was signed) nor were such services rendered to establish a right to
salary or wages. The services were rendered to negotiate the contract. There
was no right to any salary or wages until after the agreement was signed, which
was after the services in question were rendered by the Appellant’s agent.
[10]
The Appellant argued
that the proposed amendment to paragraph 8(1)(b) of the Act will
result in the amount being deductible. The proposed amendment, when proclaimed,
will be applicable to amounts paid in 2001 or later. The revised version of
paragraph 8(1)(b) of the Act will read as follows:
(b) amounts paid by the taxpayer in the year as or on account
of legal expenses incurred by the taxpayer to collect, or to establish a right
to, an amount owed to the taxpayer that, if received by the taxpayer, would be
required by this subdivision to be included in computing the taxpayer’s income;
[11]
The proposed amendment
will only change this paragraph when this amendment is effective. In any event,
the provision will still require that the services must be legal services. As
well, not all legal services will qualify. Only amounts paid for those legal
services provided to collect amounts owed to the taxpayer or to establish a
right to such amount will qualify for the deduction under this paragraph.
Therefore even if such amendments were now effective the proposed changes would
not result in the amount that was paid to the Appellant’s agent being
deductible.
[12]
The amount paid the
Appellant to his agent is not deductible under paragraph 8(1)(b) of
the Act.
[13]
The Appellant also
argued that the amount paid to his agent is deductible under subsection 8(5) of
the Act. This subsection provides as follows:
(5) Notwithstanding subparagraphs (1)(i)(i), (iv), (vi) and
(vii), dues are not deductible under those subparagraphs in
computing a taxpayer’s income from an office or employment to the extent that
they are, in effect, levied
(a) for or under a superannuation fund or plan;
(b) for or under a fund or plan for annuities, insurance
(other than professional or malpractice liability insurance that is necessary
to maintain a professional status recognized by statute) or similar benefits;
or
(c) for any other purpose not directly related to the
ordinary operating expenses of the committee or similar body, association,
board or trade union, as the case may be.
(emphasis added)
[14]
However, subsection
8(5) of the Act does not permit a deduction but rather it denies or
restricts a deduction that might otherwise have been claimed. This subsection
provides that amounts that would otherwise be deductible under subparagraphs
(1)(i)(i), (iv), (vi) or (vii) of the Act, will not be deductible
to the extent that they are levied as specified in paragraphs 8(5)(a), (b),
or (c) of the Act. This subsection does not permit any amounts to
be deducted but restricts amounts that might otherwise have been deductible.
Therefore this subsection cannot support any claim that the amount paid to the
agent of the Appellant in 2008 can be deducted in computing the Appellant’s
income from employment. It is clear that the amount paid to the agent is not
deductible under any of subparagraphs 8(1)(i)(i), (iv), (vi), or (vii)
of the Act even without the restriction imposed by
subsection 8(5) of the Act. The Appellant, in any event, did not submit
that any of these subparagraphs would permit the deduction claimed.
[15]
The Appellant did not
identify any other provision of the Act which would support his claim
for a deduction in computing his income from employment in 2008 for the amount
of $2,927.64 paid by him to his agent in 2008. Since there is no provision that
would permit the deduction of this amount, this amount is not deductible in
computing the Appellant’s income from employment for 2008 and his appeal is
dismissed, without costs.
Signed at Halifax, Nova Scotia,
this 29th day of June, 2012.
“Wyman W. Webb”
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