Citation: 2011TCC163
Date: 20110316
Docket: 2010-803(IT)I
BETWEEN:
NAVINDRA B. PERSAUD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Navindra Persaud,
is appealing the assessment by the Minister of National Revenue of his 2008
taxation year. There are two separate but related issues in this appeal:
whether the Appellant is entitled to deduct amounts under subsection 118(1) of
the Income Tax Act in respect of his two-year-old daughter; and whether
he may deduct $40,000 in legal expenses which he claimed were to enforce his
daughter’s pre-existing right to child support.
[2]
The Appellant had the onus of
proving wrong the assumptions of fact upon which the Minister based his
assessment. The relevant portions of paragraph 8 of the Reply to the Notice of
Appeal are set out under the headings below.
1. Eligible Dependant
and Support
8. ELIGIBLE
DEPENDANT AND SUPPORT:
a.
the Appellant and Angela Sarah Garcia-Persaud (the “Former Spouse”) have
one child, namely S.J.S.P. born in 2006 (the “Child”);
b.
at all material times during the 2008 taxation year, the Appellant and
the Former Spouse were living separate and apart because of a breakdown of
their relationship;
c.
the Appellant paid the Former Spouse child support during the first 10
months of the 2008 taxation year;
d.
the Appellant and the Former Spouse did not have a court order in place
prior to August 30, 2006.
[3]
The Appellant did not dispute that
in 2008 he and his former spouse were living separate and apart and that he was
required to pay child support to her in respect of his daughter of whom he and
his former spouse had joint custody. In such circumstances, subsection 118(5)
of the Act applies to disallow the Appellant’s claims for a deduction in
respect of his daughter under paragraphs 118(1)(b) and (b.1)
of the Act.
2. Legal
Fees
[4]
The Minister made the following
assumptions of fact in respect of the disallowance of the legal fees:
8. LEGAL
FEES
e)
the Appellant paid legal fees in 2008 in the amount of $80,984,00;
f)
the legal fees were not incurred to collect late support payments;
g)
the legal fees were not incurred to establish an amount of support
payments from his former spouse; and
h)
the legal fees were not incurred to make child support non-taxable.
[5]
The Minister disallowed the
deduction of legal fees on the basis that they were incurred to get a
separation or divorce, to establish, negotiate or contest the amount of support
payments; and/or to establish custody or visitation rights to a child.
[6]
The Appellant’s position is
that such costs were incurred to enforce his daughter’s right to child support
and are therefore deductible under the jurisprudence.
Facts
[7]
Following a trial in December 2007
the Appellant and his former spouse were divorced pursuant to the Order of
Justice Thompson dated December 7, 2007 (“Original Order 2007”). The effective date of the
divorce was January 7, 2008. The Court made further orders in respect of their
daughter; among other things, the parents were awarded joint custody of the
child, her primary residence being with the parent in whose care she was at any
given moment. Orders were made for regular access and holiday periods.
[8]
Of particular relevance to this
appeal were the following additional orders: Under paragraph 4, the Appellant’s
former spouse was ordered to relocate their daughter (who according to the
Appellant had been living outside of the province prior to the hearing) to
within a two-hour driving radius of the Appellant’s Ontario
residence on or before March 1, 2008. Prior to the relocation, the Appellant
was to pay child support of $500 per month;
after relocation, he was to pay $790 per month.
Pursuant to paragraph 14, “the parties” were ordered to exchange income tax
returns annually and “if necessary, [to] readjust child support”. Under
paragraph 31, any further issues “as to the best interest of [their daughter]”
were to be determined by Justice Thompson.
[9]
The Appellant’s testimony was that
his former spouse failed to disclose her financial information as required
under paragraph 14. As a result, in 2008 the Appellant brought a motion for,
among other things, the enforcement of the financial disclosure provisions in
paragraph 14 of the Original Order 2007. The motion was originally returnable
September 22, 2008 but was adjourned by the Court to October 23, 2008 (“2008
Motion”).
[10]
By Order dated October 23, 2008
(“Order to Vary 2008”), Justice Thompson varied the Original Order 2007:
while the parties retained joint custody of their daughter, her primary
residence was changed to be with the Appellant who was also given the right to
make the final decision regarding “major decisions concerning” her. The Court
deleted paragraph 11 requiring the Appellant to pay child support of $790 per
month upon the child’s relocation; no further order for child support was made
against either party. As for the financial disclosure provisions under paragraph
14, the Court ordered that “Paragraph 14 of the [Original Order 2007] is varied
to delete any reference to the adjustment of child support”.
[11]
Although the Appellant had
originally claimed legal expenses of $80,000, he reduced that amount to $40,000
in accordance with a letter from the family law lawyer who had represented him
during the proceeding in 2008. The text of that letter reads as follows:
I confirm that you have paid legal fees inclusive of
GST to these offices in calendar 2008 in an amount of $80,984.
The issues in your litigation with Ms. Garcia in the
Superior Court of Justice at Walkerton involved the obtaining of custody of
your daughter and also the obtaining of child support payments which were
ordered by the Honourable Mr. Justice Thompson.
As such I am of the view that 50% of your legal fees
paid in 2008 are income tax deductible to you in an amount of $40,492 pursuant
to the provisions of the Income Tax Act.
I trust this is the information that you require.
[12]
Also in
evidence were five invoices from the Appellant’s lawyer for
services rendered between March 28 and November 4, 2008 totaling $19,082.30.
These were only some of the invoices received in 2008; they were furnished to
the Canada Revenue Agency by the Appellant at the objection stage. When asked
on cross-examination to identify the items in the invoices pertaining to the
enforcement of his daughter’s right to child support, the Appellant stated that
he was unable to do so because of the brevity of the descriptions in the
invoices. For that reason, he was relying on his lawyer’s statement in the
letter that he was entitled to a deduction of 50% of the total billed in 2008.
[13]
None of the
materials in respect of the 2008 Motion were before the Court except the affidavit filed by the Appellant’s former spouse
dated October 17, 2008. On cross-examination, the Appellant explained he had
not brought any other documents, for example, the notice of motion, because he
did not think they would be necessary. He also said he had been busy with the
appeal of the family law matters.
Analysis
[14]
The Appellant is correct in
principle that expenses incurred to enforce a pre‑existing right to child
support are considered to be current expenses incurred to earn income from
property, thereby qualifying for a deduction under paragraph 18(1)(a)
of the Act; Nadeau v. R., 2003 FCA 400 at
paragraphs 16 and 17. The question is, however, whether the 2008 legal fees
were incurred for that purpose.
[15]
The Appellant contended that the
legal fees incurred were to compel his former spouse to furnish the financial
information necessary for the Court to determine her liability, if any, to pay
child support under the Guidelines. From this it followed that they were
incurred to enforce his daughter’s right to child support and were, therefore
deductible. The Appellant argued that his situation was on all fours with McColl
v. R., [2000] T.C.J. No. 335.
[16]
Starting with the McColl decision,
it is distinguishable from the present matter in that the Court was persuaded
by the taxpayer’s evidence that her legal costs had been incurred to enforce her
children’s right to child support. The same cannot be said here. I agree with the
submission of counsel for the Respondent that the Appellant has failed to
establish an evidentiary basis for his claims. Without at least the Notice of
Motion from the 2008 Motion, it is impossible to tell what the precise grounds
for it may have been. The materials that were before the Court, the Order to
Vary 2008 and the Appellant’s former spouse’s affidavit, are not sufficient in
themselves to provide a basis for the Appellant’s position. The Order to Vary
2008 made no order for child support against either party and eliminated any
directions for the adjustment of child support. As for the affidavit of the
former spouse, it was in response to the one he had made in support of the 2008
Motion. That document, however, was not before the Court, leaving half of the
story untold. What the former spouse’s affidavit does show is that by the time
of the 2008 Motion, there were numerous bones of contention between the parties.
Beyond that, even read in light of the Order to Vary 2008, the former spouse’s
affidavit in itself does not support the Appellant’s position that the 2008
Motion had to do with the enforcement of his daughter’s pre‑existing
right to child support. It seems as likely that it had to do with the reduction
of the amounts originally ordered to be paid by the Appellant.
[17]
Equally unhelpful to the
Appellant’s position are the letter from his family law lawyer and the invoices
for some of the services rendered in 2008. Beginning with the letter, it
contains only his lawyer’s opinion as to what percentage of the 2008 fees
should be deductible. It would have been more useful had he identified which services,
if any, were directed to compelling the former spouse to furnish her financial
information or even generally, to determining her child support obligations. Even
under the more relaxed rules of the Informal Procedure, I am unable to give weight
to what amounts to hearsay opinion evidence. Furthermore, when the Appellant
was given the opportunity on cross-examination to cure this flaw by reviewing
the invoices to explain what the enumerated services pertained to, he was
unable to do so. In any case, the invoices in evidence total less than half of
the $40,000 in legal expenses claimed by the Appellant.
[18]
The upshot is that the Appellant has
not met his onus of establishing his entitlement to a deduction for legal fees
in 2008. There being insufficient evidence before me to justify interfering
with the reassessment of the Minister of National Revenue, the appeal of the
2008 taxation year must be dismissed.
Signed at Ottawa,
Canada, this 16th day of March 2011.
“G. A. Sheridan”
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