Bell
J.T.C.C.:
—
Issues
The
issues
in
this
appeal
are
whether
the
Appellant
was
entitled
to
the
deduction
of
the
following
amounts
in
respect
of
his
1989,
1990
and
1991
taxation
years,
(a)
1989
—
the
commission
paid
on
sale
of
real
estate:
$15,000
(b)
1989
-
property
taxes
and
rental
adjustment:
$
7,013
(c)
1990
—
legal
fees:
$25,981
(d)
1990
-
travel
and
telephone
expenses:
$
3,524
(e)
1991-legal
fees:
$34,050
(f)
1991
—
maintenance
payments:
$30,267.82
The
Appellant
withdrew
his
appeal
with
respect
to
the
maintenance
payments
of
$30,267.82.
The
Respondent
agreed
at
the
hearing
that
the
sum
of
$7,013
in
respect
of
property
taxes
and
rental
adjustment
was
deductible.
This
leaves
for
resolution
whether
the
1989
real
estate
commission
of
$15,000,
1990
legal
fees
of
$25,981,
1991
legal
fees
of
$34,050
and
1990
travel
and
telephone
expenses
of
$3,524
were
deductible.
Facts
acts
The
Appellant
testified
that
he
had
been
in
the
business
of
real
estate,
having
built,
leased
and
operated
buildings
since
1969.
However,
the
evidence
adduced
related
to
two
buildings
only.
He
built
a
building
for
the
Royal
Bank
of
Canada
in
Evansburg,
Alberta,
in
1974
and
1975.
He
had
bought
and
sold
several
farms
in
that
area
and
used
the
proceeds
and
a
mortgage
to
finance
that
building.
In
1977
he
purchased
land
from
the
village
with
a
view
to
developing
same
and
completed
a
three
phase
shopping
centre
on
that
land
in
late
1981.
In
1984
he
sold
the
Royal
Bank
building.
He
subsequently
sold
the
shopping
centre
and
paid
a
$15,000
fee
to
Canada
Trust
for
its
services
on
that
sale.
The
sale
price
of
the
shopping
centre
was
$625,000
paid
as
to
$300,000
in
cash
and
a
mortgage
to
the
Appellant
for
$325,000.
He
stated
that
after
the
sale
his
income
source
was
the
mortgage,
having
replaced
the
rental
revenues
from
the
shopping
centre.
The
Appellant
also
testified
that
he
was
researching
different
real
estate
ventures
and,
in
particular,
had
investigated
the
potential
of
building
a
mini-storage
facility
in
Delta,
British
Columbia.
However,
he
was
unable
to
proceed
with
it
because
the
shopping
centre
purchaser
defaulted
on
his
mortgage
payments.
He
commenced
a
foreclosure
action
which
his
counsel
described
as
being
a
security
enforcement
as
well
as
a
claim
for
rent
in
default.
The
Appellant,
in
1990
and
1991,
spent
$25,981
and
$34,050
respectively
on
legal
fees
in
respect
of
the
pursuit
of
foreclosure
action.
This
matter
was
settled
on
February
13,
1991
with
the
payment
by
the
mortgagor
of
all
arrears.
At
the
same
time,
the
Appellant
suffered
a
heart
attack
which,
together
with
subsequent
heart
problems
has
rendered
him
unable
to
be
active
in
the
construction
business.
The
Appellant
testified
that
in
1990
he
travelled
from
his
residence
in
Washington
State,
U.S.A.
to
Edmonton
and
from
Edmonton
to
Evansburg
in
respect
of
the
foreclosure
action.
He
stated
that
his
telephone
and
travel
expenses
in
connection
with
this
legal
matter
and
the
examination
of
new
real
estate
prospects
totalled
$7,047.83
and
that
he
had
agreed
with
the
Department
of
National
Revenue
to
abandon
half
of
that
claim,
testifying
that
he
understood
the
Department
was
going
to
allow
the
remaining
amount
of
$3,524.
On
cross-examination
the
Appellant
testified
that
he
lived
partly
in
Washington
State
but
mostly
in
Alberta
and
that
the
travel
expenses
were
for
his
journeys
from
Washington
to
Alberta,
and
examining
business
propositions
in
British
Columbia
-
in
particular,
in
Abbotsford,
White
Rock
and
Richmond.
He
said
that
he
had
declared
the
gain
on
the
sale
of
the
shopping
centre
as
a
capital
gain
and
it
was
assessed
as
such.
He
said
that
he
had
explored
the
mini-storage
prospect
in
detail
and
had
taken
an
architect
to
that
site,
all
with
the
prospect
of
erecting
a
building
from
which
he
would
earn
income.
He
stated
that
part
of
the
legal
fees
were
for
advice
he
received
in
respect
of
the
acquisition
of
land,
by
lease,
and
the
construction
of
the
building.
He
said
that
85
per
cent
to
90
per
cent
of
the
legal
fees
represented
his
shopping
centre
foreclosure
matters
and
the
balance
represented
other
potential
real
estate
ventures.
Appellant’s
Submission
Appellant’s
counsel
submitted
that
the
Appellant
was
in
the
real
estate
business
since
1969
and
that
in
general,
legal
expenses
are
current
deductible
expenses
if
they
do
not
relate
to
the
creation
of
a
capital
asset.
He
referred
to
Minister
of
National
Revenue
v.
Dominion
Natural
Gas
Co.
(sub
nom.
Dominion
Natural
Gas
Co.
v.
Minister
of
National
Revenue),
[1941]
S.C.R.
19,
1
D.T.C.
248.
He
said
that
a
large
part
of
the
legal
fees
were
to
recover
the
mortgage
arrears
on
real
estate
that
had
been
his
business
asset.
He
then
submitted
that
the
remaining
portion
of
those
fees
was
for
general
legal
advice
and
should
be
a
current
expense.
Counsel
stated
that
the
travel
and
telephone
expenses
were
necessary
for
the
Appellant’s
business
and
with
respect
to
the
$15,000
paid
to
Canada
Trust
stated
that
the
Appellant
had
undertaken
with
Canada
Trust
to
pay
it
whether
or
not
he
accepted
a
purchaser
produced
by
it.
Respondent's
Submission
The
Respondent
said
with
respect
to
the
$15,000
that
it
was
a
commission
on
the
sale
of
the
shopping
centre
which
had
been
declared
as
a
capital
transaction,
that
this
would
increase
the
adjusted
cost
base
of
that
asset
and
was
not
deductible.
With
respect
to
the
legal
fees
in
1990
and
1991
Respondent
submitted
that
they
were
not
deductible
because
there
was
no
evidence
that
the
Appellant
was
a
money
lender,
that
the
foreclosure
action
pertained
to
the
mortgage
and
was
not
an
expenditure
to
produce
income.
He
referred
to
paragraph
18(
l)(a)
of
the
Income
Tax
Act
(“Act”)
which
provides
that
no
deduction
shall
be
made
in
respect
of
an
outlay
or
expense
except
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
business
or
property.
Counsel
submitted
that
if
the
Appellant
had
sued
for
rent
the
legal
expenses
in
connection
therewith
may
have
been
deductible
but
that
this
was
a
foreclosure
action
dealing
with
the
mortgage
which
he
said
was
capital
in
nature.
With
regard
to
the
10
per
cent
to
15
per
cent
of
legal
fees
expended
with
respect
to
prospective
ventures
he
stated
that
no
income
was
generated
and
that
it
was
a
capital
expenditure
because
any
asset
acquired
as
a
result
thereof
would
be
a
capital
investment.
With
respect
to
the
travel
and
telephone
expenses
of
$3,524
Respondent’s
counsel
submitted
that
they
pertained
to
travel
from
a
residence
in
the
U.S.
to
a
residence
in
Edmonton
and
were
personal
and
further
that
because
they
were
expended
with
respect
to
the
shopping
centre
litigation
they
concerned
the
mortgage
which
was
capital
in
nature
and
were
not
deductible.
Conclusion
The
$15,000
sale
commission
related
to
a
capital
transaction
and
is
not
a
deductible
expense.
The
legal
fees
relate
to
the
preservation
of
a
capital
asset,
namely
the
mortgage
taken
in
a
capital
transaction.
In
Evans
v.
Minister
of
National
Revenue,
[1960]
S.C.R.
391,
[1960]
C.T.C.
69,
60
D.T.C.
1047,
the
Supreme
Court
of
Canada
found
that
legal
fees
expended
in
convincing
the
court
that
the
Appellant
was
entitled
to
annual
income
for
life
from
an
estate,
were
deductible.
This
would
seem
to
support
the
deductibility
of
the
present
Appellant’s
fees
relating
to
legal
action
for
collecting
income
in
default.
However
in
the
absence
of
evidence
respecting
same
I
am
unable
to
find
that
any
portion
of
the
legal
fees
relate
to
income
account.
Accordingly,
I
find
that
no
part
of
the
legal
fees
are
deductible.
Also,
because
the
travel
and
telephone
expenses
relate
to
the
mortgage
foreclosure
action
and
the
investigation
of
potential
projects,
no
portion
thereof
is
deductible.
Therefore,
the
appeal
is
allowed
to
the
extent
of
the
sum
of
$7,013
aforesaid.
Appeal
allowed
in
part.
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