MNR v. Poulin, 96 DTC 6477, 204 N.R. 376 (FCA)

In finding that a real estate agent could not deduct legal expenses incurred in defending a suit alleging fraud and misrepresentation while negotiating a real estate transaction, Marceau J.A. indicated (at para. 7) that in order for a payment which is not itself made for the purpose of earning a profit to satisfy s. 18(1)(a):

it must be seen as the unfortunate consequence of a risk that the taxpayer had to take and assume in order to carry on his trade or profession. And in order for the payment to be seen as such, it is an essential condition, I believe, that it be directly related to an act that was necessary in order to carry on the trade or profession and that it could potentially have been considered to have been performed improperly.

Before finding that a real estate agent could not deduct legal expenses incurred in defending a suit alleging fraud and misrepresentation while negotiating a real estate transaction, and with the damages being paid by the agent three years after he ceased to act as a broker, Marceau J.A. stated that the agent “cannot be considered to have ceased his activities as a broker as long as he was engaged in completing the things he had done in carrying on his profession, even though at that point he was no longer carrying on business and could no longer act on behalf of clients.”