Kyard Capital 2007 Inc. v. Agence du revenu du Québec, 2019 QCCQ 1617

The individual taxpayer (“Fontaine”) was the president and majority shareholder of a corporation (“Kyard”) that earned fees from the provision of accounting and administration services to a single client (being a group of companies owned by a family who had come to Canada from Hong Kong).

The ARQ assessed Fontaine to inter alia add to his employment income pursuant to s. 37 of the Taxation Act (the equivalent of ITA s. 6(1)(a)) the amount of his Quebec CPA dues that had been paid by Kyard. In confirming this aspect of the assessment, Chalilfour JCQ noted (at paras. 116-117, TaxInterpretations translation):

… Mr. Fontaine deducted the amount of the dues form his net income while Kyard also took that expense. It is appropriate to correct that situation.

… The professional dues paid by Kyard must be added to the net income of Mr. Fontaine.

The individual taxpayer (“Fontaine”) was the president and majority shareholder of a corporation (“Kyard”) that earned fees from the provision of accounting and administration services to a single client (being a group of companies owned by a family who had come to Canada from Hong Kong).

The ARQ assessed Fontaine under s. 111 of the Taxation Act (equivalent to ITA s. 15(1) to include in his income the amount of the fees of a legal firm for $25,477 that had been paid by Kyard in defending an action that had been brought by Fontaine’s ex-spouse. The ARQ considered that these fees, the accounts for which were in the name of Fontaine although addressed to the Kyard office, were occasioned by his divorce.

After noting that the description of the legal services provided had not been revealed to the ARQ on the grounds of privilege, Chalilfour JCQ stated (at paras. 133-135, TaxInterpretations translation):

Not waiving professional privilege could certainly render the reversing of the presumption of validity of an assessment … more difficult.

That said, the issue in question should be addressed without the decision of the plaintiffs to not waive professional privilege being fatal.

Otherwise taxpayers would be required to waive professional privilege.

She went on to accept Fontaine’s testimony that he had used another law firm in connection with his divorce, and that the action (brought by her as a former supplier to the Kyard business) had been defended as a threat to Kyard. Accordingly, Fontaine had not received a taxable benefit.

The individual taxpayer (“Fontaine”), who was the president and majority shareholder of a corporation (“Kyard”), was assessed under the Quebec equivalent of s. 15(1) when Kyard paid his fees for defending against an action brought against him by his ex-spouse. He did not disclose to the ARQ the text of the legal accounts on the grounds of privilege. In this regard, Chalilfour JCQ noted that this decision to not waive the privilege made Fontaine’s task more difficult but should not be “fatal,” stating that “Otherwise taxpayers would be required to waive professional privilege” (at para. 135, TaxInterpretations translation). [Cf. Orth.]

She then accepted Fontaine’s testimony (without any real documentary corroboration) that the action had been defended as a threat to Kyard’s business - so that he had not received a taxable benefit.