Spiegel Sohmer – Court of Quebec finds that reimbursing expenses for the wedding of a law firm partner’s daughter generated a non-deductible taxable benefit

In 1994, Grunbaum found that expenses incurred by the corporate taxpayer as a result of inviting business guests to a wedding reception held in honour of the daughter of a shareholder were incurred by it for the purpose of gaining or producing income from its business.

More recently, a senior tax partner of a Montreal law firm (“Raich”) sought and received reimbursement from the firm’s management company (Spiegel Sohmer Inc, of which Raich was the largest shareholder) for 97/218 of the $169,000 cost of the Montreal wedding of Raich’s daughter: 97 of the 218 guests at the reception were clients, business contacts or partners of Raich. Spiegel Sohmer Inc. submitted that it bore such expense “in order to solidify the professional and commercial relations of Mr. Raich with his clients.”

In finding that the reimbursed expenses were non-deductible, and that their reimbursement gave rise to a taxable benefit to Raich, Bourgeois JCQ noted that no former partner of Raich had testified as to what discussions had occurred regarding the expense reimbursements and the business opportunity arising from the marriage of Raich’s daughter, and stated that it accordingly was impossible for the Court “to determine if such event presented an important promotional aspect to the firm.”

Neal Armstrong. Summary of Spiegel Sohmer Inc. v. Agence du revenu du Québec, 2021 QCCQ 69 under s. 18(1)(a) – income-producing purpose.