CIBC - Federal Court of Appeal severely restricts the doctrine that expenses of "egregious or repulsive" conduct are non-deductible

Iacobucci J stated, obiter, in 65302 that conduct of a taxpayer may be so "egregious or repulsive" as to indicate that resulting fines were not incurred for the purpose of producing income.

Sharlow JA has struck a Crown pleading which stated that alleged conduct of CIBC in aiding Enron in falsifying its financial statements was so "egregious and repulsive" that damages of $3 billion paid by CIBC in settlement of Enron-related suits could not be considered as having been incurred for an income-producing purpose.  She stated that "characterization of the morality of CIBC's conduct is not legally relevant to the application of paragraph 18(1)(a)," and that what Iacobucci J was getting at was that "certain conduct may, because of its egregious or repulsive nature, be so disconnected factually from the taxpayer's actual business (or any business) that an expense the taxpayer incurs because of that conduct cannot meet the income earning purpose test."  She didn't give examples, but something like expenses of a call girl or hit man would not have any acceptable connection to a legitimate business.

Neal Armstrong.  Summary of CIBC v. The Queen, 2013 FCA 122 under s. 18(1)(a) - income-producing purpose.