Citation: 2009 TCC 216
Date: 20090422
Dockets: 2008-497(IT)I
2008-1950(IT)I
BETWEEN:
JAMES K. MEDYNSKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The appellant, James Medynski, appeals in respect of
assessments made under the Income Tax Act for the 2004 and 2005 taxation
years.
[2] The question to be determined is the deductibility of
certain expenses that were incurred by Mr. Medynski and reimbursed to him by
his former employer, the Dene Tha’ First Nation.
[3] The reimbursement was part of a damages award made by
an arbitrator following the summary dismissal of Mr. Medynski as a school
principal in 2004. The employer admitted that the dismissal was unjust. The
arbitration was only to set the damages.
[4] The total amounts received by Mr. Medynski pursuant to
the award were $216,237 in 2004 and $122,274 in 2005.
[5] The appellant acknowledges that these amounts are
included in income as a “retiring allowance” as that term is defined in s.
248(1) of the Act. It provides:
“retiring allowance” - “retiring allowance” means an
amount (other than a superannuation or pension benefit, an amount received as a
consequence of the death of an employee or a benefit described in subparagraph
6(1)(a)(iv)) received
(a) on or after retirement of a
taxpayer from an office or employment in recognition of the taxpayer’s long
service, or
(b) in respect of a loss of an
office or employment of a taxpayer, whether or not received as, on account or
in lieu of payment of, damages or pursuant to an order or judgment of a
competent tribunal,
by the taxpayer or, after the taxpayer’s
death, by a dependant or a relation of the taxpayer or by the legal
representative of the taxpayer;
[6] Included in computing the above amounts are various
expenditures made by Mr. Medynski. He seeks to deduct some of these as legal
expenses.
[7] The amounts which are claimed as legal expenses are:
(a)
travel costs between Calgary, Alberta
and his new place of employment - $7,492.10;
(b)
research, legal and accounting
fees in connection with the arbitration proceeding - $3,144.31;
(c)
relocation expenses from Chateh,
Alberta, his former place of employment to Calgary, Alberta - $2,392.84;
(d)
increased housing costs in
Calgary, Alberta as compared with Chateh, Alberta where he was formerly employed - $15,950;
(e)
dental, medical and vision
expenses that would have been reimbursed to Mr. Medynski if he had continued to
be employed - $3,051.19; and
(f)
interview expenses relating to new
employment - $1,537.79.
[8] Mr. Medynski seeks to deduct these expenses as legal
expenses pursuant to paragraph 60(o.1) of the Act.
[9] In the assessments, the Minister did allow a deduction
for some of the expenses. The amounts allowed are listed above in (b) under the
category “research, legal and accounting expenses.” These amounts are not in
dispute.
[10] In respect of the other items, it is the Minister’s
position that they are not legal expenses and are not deductible under the Act.
[11] The provision that Mr. Mednyski seeks to have applied
allows a deduction for legal expenses paid to collect or establish a right to a
retiring allowance.
[12] Certain parts of the provision are reproduced below,
with the relevant parts underlined:
60.(o.1) Idem -
the amount, if any, by which the lesser of
(i) the total of all legal expenses
(other than those relating to a division or settlement of property
arising out of, or on a breakdown of, a marriage or
common-law partnership) paid by the taxpayer in the year or in
any of the 7 preceding taxation years to collect or establish
a right to an amount of
[…]
(B) a retiring allowance of the
taxpayer or a deceased individual of whom the taxpayer was
a dependant, relation or legal representative […]
[Emphasis added]
[13] The question is simply whether the amounts in dispute
are legal expenses.
[14] Mr. Medynski submits that the word “legal” has a very
broad meaning. According to the dictionary, it encompasses anything related to
the law.
[15] Applying this meaning to the term “legal expenses,”
Mr. Medynski suggests, it includes any expenses that are in some way related to
the law.
[16] In the context of paragraph 60(o.1), it is
submitted a deduction is allowed for expenses that are incurred to establish a
retiring allowance that have some relationship to the law.
[17] Several of the above expenses would qualify for
deduction under this provision, it is suggested, because they are expenses
incurred to mitigate damages. Mitigation is a legal requirement. The deduction
also encompasses medical expenses, it is suggested, because there is a legal
requirement for receipts in order to be entitled to reimbursement for these.
[18] The term “legal expenses” in para. 60(o.1) must
be interpreted in context and in accordance with the purpose of the provision.
[19] In my view, the meaning ascribed to “legal expenses”
that is suggested by Mr. Medynski is broader than what is contemplated by the
section.
[20] The purpose of paragraph 60(o.1) is to allow a
deduction for expenses of legal-type services incurred in connection with
collecting or establishing a right to a retiring allowance or other amounts
which are not relevant here. The type of expenses which are contemplated by the
provision are expenses incurred for services typically performed by a lawyer.
It may also include support services such as accounting fees which are incurred
to support a wrongful dismissal claim.
[21] None of the disputed items qualify as legal expenses
in accordance with this meaning.
[22] This is sufficient to dispose of the main issue but I
would briefly mention other issues that arose during the hearing.
[23] The first concerns other arguments that Mr. Medynski
sought to raise at the hearing.
[24] The arguments are: (1) that the Canada Revenue Agency
had acted improperly during the audit, (2) that interest charged pursuant to
the Act contravenes the equality provisions of the Canadian Charter
of Rights and Freedoms, and (3) that an award of general damages of $5,000
is not taxable.
[25] I did not allow these arguments to be raised at the
hearing because the Minister did not have sufficient notice of them.
[26] The appeal for the 2005 taxation year first came
before me last September. At that hearing, the matter was adjourned to enable
Mr. Medynski to provide details to the Minister of a constitutional argument.
The matter was rescheduled for January 2009 on a peremptory basis.
[27] The Minister was not provided with further information
of the constitutional argument raised in September prior to the hearing.
Further Mr. Medynski did not provide the Minister with notice of new arguments
that were raised for the first time at the January 2009 hearing. It would not
be fair to the Minister to have these issues adjudicated without prior notice.
[28] The second matter concerns the possibility of a
deduction under other provisions. Although Mr. Medynski did not suggest
that the expenses were deductible under any other provision of the Act,
counsel for the Minister informed the Court that the Canada Revenue Agency had
considered whether a deduction might be allowable under other provisions.
Apparently, they had concluded that no other provisions were applicable. Mr.
Medynski did not challenge this at the hearing.
[29] Finally, I would mention that the parties were asked
to provide submissions subsequent to the hearing on whether there would be a
basis to exclude some of the reimbursement payments from the computation of the
retiring allowance.
[30] Although this issue was not raised by Mr. Medynski, I
felt that it was important for the parties to address it because the result in
the case appears to be harsh. After reviewing the submissions, I am not aware
of any basis on which I could provide relief.
[31] I would briefly mention that I considered the
potential application of the surrogatum principle. This is a judge-made rule
that applies to some damage payments. The problem here is that a judge-made
rule cannot override the specific provisions of the Act. The amounts
received here are within the statutory definition of retiring allowance.
[32] In the result, the appeal in respect of the 2004 and
2005 taxation years is dismissed.
Signed at Ottawa, Canada this 22nd day of April 2009.
“J. Woods”
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