Citation: 2007TCC754
Date: 20071214
Docket: 2007-3200(IT)I
BETWEEN:
HAROLD D. McINTYRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
O'Connor, J.
[1] This appeal was
heard in Fredericton,
New Brunswick on December 7, 2007.
[2] The basic facts are
as follows:
1. The Appellant, Harold D.
McIntyre, had been making child support payments to his ex spouse, Anola
Kathleen McIntyre in respect of their son, Adam.
2. The Appellant took legal
proceedings to have the child support payments eliminated on the ground that
Adam had become independent in 2004. The Appellant succeeded in his legal
proceedings and the Court of Queen’s Bench, New Brunswick, by a Judgment dated
October 25, 2004, confirmed that the Appellant was no longer required to make
the said child support payments.
3. The Appellant incurred legal
fees of $22,600 in respect of those legal proceedings and sought to deduct the
said legal fees of $22,600 in his 2005 taxation year.
4. The Minister of National
Revenue (“Minister”) denied the deduction on the ground that the said legal
fees were not incurred to earn income from a business or property, the Minister
relying on section 3 and paragraph 18(1)(a) of the Income Tax Act (“Act”).
[3] The issue is
whether the Minister was correct in denying the said deduction.
[4] This issue as to when
a person is entitled to deduct legal expenses incurred in respect of support
payments to a consort or for the benefit of a child of the marriage has
resulted in much litigation, some of which has perhaps not been consistently
decided.
[5] The Appellant, who
represented himself, submitted considerable material, both legal and factual,
demonstrating the apparent lack of clarity in some of the decisions. The
difficulty he had was understanding the rationale behind most of the decisions
which, in the main, denied the deduction of legal expenses in situations
similar to that of the Appellant. The Appellant was obviously in good faith
contending that the Minister was incorrect in denying the deduction of the
legal expenses.
ANALYSIS
[6] In my opinion, the
most succinct and correct summary of the current state of the law was set forth
by Chief Justice Bowman of this Court in Loewig v. The Queen, 2006
D.T.C. 3500.
[7] In that case, Chief
Justice Bowman stated as follows:
1 This
appeal is from an income tax assessment for the appellant's 2003 taxation year.
Although other issues were raised in the notice of appeal and the reply to the
notice of appeal, Mr. Loewig proceeded with only one issue, the
deductibility of $1,391.00 in legal fees incurred in connection with a court
proceeding in which he sought to have stopped the continued deduction of
support payments by the Family Responsibility Office ("FRO").
2 The
facts are quite straightforward. The appellant and his first wife are the
parents of one child, Alessandra, born March 7, 1989. They separated and under
the separation agreement of January 7, 1992, the spouse had custody of
Alessandra. The appellant was obliged to pay to his spouse support payments in
respect of Alessandra until one of several events, the relevant one here being
if Alessandra ceased to live principally with the spouse. She moved out of the
spouse's home in May 2003. …
[8] The Chief Justice went on to explain that Mr. Loewig
had to obtain a Court Order to enable him to stop the said support payments in
respect of Alessandra, which he succeeded in doing, incurring certain legal
fees in so doing. The Chief Justice stated further:
5 The
legal fees for obtaining the court order were $1,389.00. The appellant claimed
them and they were disallowed.
6 The
question of the deductibility of legal fees to obtain support payments has a
long history. It is comprehensively reviewed by Noël J. of the Federal Court of
Appeal in Nadeau c. R. (2003), [2004] 1 C.T.C. 293 (F.C.A.). For forty
years the judges of this court had held that the legal costs of establishing or
maintaining a right to maintenance were deductible on the basis that the right
to support income was property and therefore amounts laid out to obtain support
income were deductible and were not provided by paragraph 18(1)(a) which
prohibits the deduction of amounts not laid out for the purpose of gaining or
producing income from a business or property. Justice Archambault refused to
follow this long established line of authority. The Federal Court of Appeal
held that he was wrong but affirmed his conclusion that the expenses of the
payor were not deductible. At paragraph 18, the Federal Court of Appeal said:
18 Conversely, the expenses incurred by the payer
of support (either to prevent it from being established or increased, or to
decrease or terminate it) cannot be considered to have been incurred for the
purpose of earning income, and the courts have never recognized any right to
the deduction of these expenditures (see, for example, Bayer, supra).
7 The
reasoning is that while the recipient of support payments may be incurring the
cost of receiving income, the same cannot be said of the payor.
8 Mr.
Loewig, in a very thorough and carefully reasoned argument,
asserted that he was seeking to establish a pre-existing right and he was
seeking to recover amounts that had wrongly been deducted from his salary. He
relies upon paragraph 18 of Interpretation Bulletin IT-99R5 (Consolidated)
which reads:
18. Legal costs
incurred to enforce pre-existing rights to interim or permanent support amounts
are deductible. A pre-existing right to a support amount can arise from a
written agreement, a court order or legislation such as sections 11 and 15.1 of
the Divorce Act with respect to child support, or Part III of the Family
Law Act of Ontario, and enforcing such a right does not create or establish
a new right; see The Queen v. Burgess, [1981] C.T.C. 258, 81 D.T.C. 5192
(F.C.T.D.). In addition, legal expenses incurred to defend against the
reduction of support payments are deductible since the expenses do not create
any new rights to income; see The Attorney General of Canadav. Norma
McCready Sembinelli, [1994] 2 CTC 378, 94 DTC 6636 (FCA.).
9 I
have great sympathy for his position which strikes me as consistent with
fairness and common sense. Nonetheless, the cost of the recovering amounts paid
in excess of his obligations under the separation agreement and which, when
recovered by him are not income in his hands (he did not deduct the amounts
paid after July 1, 2003) cannot be said to be the cost of gaining or producing
income.
10 While
interpretation bulletins are not the law, nonetheless the statement in
paragraph 21 of IT-99R5 is, in my view, a correct statement of the law and is
consistent with the Nadeau decision. It reads:
21. From the
payer's standpoint, legal costs incurred in negotiating or contesting an
application for support payments are not deductible since these costs are
personal or living expenses. Similarly, legal costs incurred for the purpose of
terminating or reducing the amount of support payments are not deductible since
success in such an action does not produce income from a business or property.
Legal expenses relating to obtaining custody of or visitation rights to
children are also non-deductible.
[9] I agree with the
decision of Chief Justice Bowman which follows the decision of the Federal
Court of Appeal which is binding on this Court.
[10] Consequently, for
the above reasons, the appeal is dismissed but there shall be no costs.
Signed at Ottawa, Canada this 14th day of December, 2007.
"T. O'Connor"
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