Bessette v. ARC (Quebec Revenue Agency), 2014 QCCQ 4329

The dental practice of the taxpayer paid fees of approximately 70% of its revenues to a services company (which was wholly-owned by the dentist through a holding company) pursuant to annual contracts which (in an apparently back-dated Appendix) provided for the provision of management and health services to the practice by the services company. Gouin JCQ stated (at para. 34, TaxInterpretations translation) that "the evidence…demonstrates clearly that [the services company] had no employees and did not purchase any supplies for eventual use in management or health services."

Before denying the deduction of the fees in toto, Gouin JCQ stated (at para. 30) that "it is necessary to prove that the management expenses constitute genuine expenses and not a sham in the sense that the concluded agreements represented genuine transactions between the parties," and then quoted with approval the statement in Fillion v. The Queen, 2004 FCA 135, at para. 72 [clumsy official translation below] that:

In order to claim an expense, it is not enough to make an accounting entry backed by a vague invoice [and]… it must be established that the evidence was real, fully supported and justified and, moreover, that the expenditure was incurred in order to produce business income… .

The dental practice of the taxpayer paid fees of approximately 70% of its revenues to a services company (which was wholly-owned by the dentist through a holding company) pursuant to annual contracts which (in an apparently back-dated Appendix) provided for the provision of management and health services to the practice by the services company. Gouin JCQ stated (at para. 34, TaxInterpretations translation) that "the evidence…demonstrates clearly that [the services company] had no employees and did not purchase any supplies for eventual use in management or health services."

Before confirming ARC's denial of the deduction of the fees in toto under TA, ss. 128 and 140 (similar to ITA, ss. 18(1)(a) and 67), Gouin JCQ stated (at para. 30) that "it is necessary to prove that the management expenses constitute genuine expenses and not a sham in the sense that the concluded agreements represented genuine transactions between the parties," and then quoted with approval the statement in Fillion v. The Queen, 2004 FCA 135, at para. 72 [clumsy official translation below] that:

In order to claim an expense, it is not enough to make an accounting entry backed by a vague invoice [and]… it must be established that the evidence was real, fully supported and justified and, moreover, that the expenditure was incurred in order to produce business income… .