Blagdon v. The Queen, docket 2001-2986-IT-I (Informal Procedure)

Date: 20020208

Docket: 2001-2986-IT-I

BETWEEN:

WILLIAM O. BLAGDON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bowman, A.C.J.

[1]      This appeal is from an assessment for the appellant's 1999 taxation year whereby the Minister of National Revenue denied to him a deduction for $7,167.72 claimed under paragraph 8(1)(b) of the Income Tax Act. The claim consisted of two amounts.

(a)       Legal fees in the amount of $6,249 for representation at a Transport Canada inquiry into allegations of incompetence arising from an explosion in 1997 on board a tanker of which he was the captain.

(b)      Legal fees of $918 paid in connection with a wrongful dismissal suit against a former employer, T.B. Services Ltd. The actual amount was $651.59. I have not attempted to reconcile the figures.

[2]      In 1996 the appellant was engaged as the Master of a tanker the M/V Petrolab which transported gasoline and diesel fuel to ports on the Newfoundland and Labrador coasts. He was asked by the owner if he wanted to work again in 1997 and he stated that he would do so only if changes to the vessel were made. The owner, William Normore, said that he would make the changes and the appellant went back in the spring of 1997 on the condition that the changes would be made within 90 days of May 25, 1997.

[3]      On July 19, 1997, in port at St. Barbe on the northern peninsula a serious explosion occurred during the cleaning of the vessel. Two people were killed, others were injured and the vessel was destroyed.

[4]      An initial inquiry under the Canada Shipping Act was held in 1997 and a further inquiry was held in 1998 into allegations of the appellant's incompetence in relation to the accident in 1997.

[5]      These were essentially four allegations of incompetence that were to be examined by the Commission of Inquiry. The evidence is unclear whether charges were actually laid or whether the inquiry was to determine whether charges should be laid.

[6]      The allegations in general were:

(a)       Failure to comply with the Safe Working Practices Regulations made under the Canada Shipping Act.

(b)      Failure to use the slop tank prior to the explosion and the use instead of cofferdam.

(c)      Failure to carry out tank cleaning operations in a safe manner (several specific failures were alleged under this head).

(d)      Failure to comply with the Canada Labour Code, Part II. This head included several alleged failures to follow prescribed safety precautions.

[7]      It was to meet these allegations that the appellant retained Mr. Corwin Mills, Q.C. I agree with the appellant that he could have lost his Master's certificate for a lengthy period of time if not permanently had the charges been substantiated.

[8]      Mr. Mills made a without prejudice offer of settlement to Mr. Young of Transport Canada Legal Services on May 14, 1999 as follows:

In the meantime, our client is prepared to have this settled on the following basis:

1.          That the charges against him be withdrawn and a public announcement of same be made;

2.          That he voluntarily agrees not to go Master of any tanker unless he takes the course in question;

3.          That the Department contribute towards his legal costs.

[9]      The offer was rejected but later on that summer the charges were dropped. However after dropping the charges Transport Canada suspended the appellant's Master's certificate. He subsequently had it reinstated after writing an examination.

[10]     The question is whether the legal fees relating to his representation before the board of inquiry and his legal fees for the wrongful dismissal action against T.B. Services Ltd. are deductible under paragraph 8(1)(b).

[11]     Paragraph 8(1)(b) reads

8(1)       In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

...

(b)         amounts paid by the taxpayer in the year as or on account of legal expenses incurred by the taxpayer to collect or establish a right to salary or wages owned to the taxpayer by the employer or former employer of the taxpayer.

[12]     "Salary or wages" is defined in subsection 248(1) as follows.

"salary or wages", except in sections 5 and 63 and the definition "death benefit" in this subsection, means the income of a taxpayer from an office or employment as computed under subdivision a of Division B of Part I and includes all fees received for services not rendered in the course of the taxpayer's business but does not include superannuation or pension benefits or retiring allowances.

[13]     "Retiring allowance" is defined in subsection 248(1).

"retiring allowance" means an amount (other than a superannuation or pension benefit, an amount received as a consequence of the death of an employee or a benefit described in subparagraph 6(1)(a)(iv)) received

(a)         on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service, or

(b)         in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal,

by the taxpayer or, after the taxpayer's death, by a dependant or a relation of the taxpayer or by the legal representative of the taxpayer.

[14]     Subsection 8(2) limits deductions from an office or employment to those specifically provided in section 8.

[15]     I can deal briefly with the claim to deduct legal expenses in connection with the wrongful dismissal action. The action would, if successful, have resulted in damages. Damages for loss of office or employment are included in the definition of retiring allowance. Retiring allowances are excluded from the definition of salary and wages. Paragraph 8(1)(b) permits the deduction of legal fees to collect or establish a right to salary or wages. Therefore an action to recover damages for wrongful dismissal cannot be to collect salary or wages within the meaning of the Income Tax Act.

[16]     So far as the legal fees of $6,249 paid to represent the appellant before the Transport Canada inquiry is concerned I do not see how these expenses can realistically be said to be incurred to collect or establish a right to salary or wages owed to the appellant by his employer or former employer. There is no suggestion that any salary or wages were owing to the appellant by his employer. Indeed, the connection of the inquiry with salary and wages was at best remote and indirect. It is true, if the appellant lost his Master's certificate, it would have a serious impact on the salary or wages that he might earn from some other employer in the future. Nonetheless the representation of the appellant before the board of inquiry was not to collect salary or wages owing to him but to protect his means of livelihood.

[17]     Numerous authorities were cited by Crown counsel. They need not be reproduced here. The statute is clear. However I shall list them because they provide a useful review of the law in this area.

-         M. L'Ecuyer v. Canada, [1995] 2 C.T.C. 2983

-         Turner-Lienaux v. R., [1997] 2 C.T.C. 344

-         Jazairi v. R., [2001] 2 C.T.C. 28

-         Basque v. R., 1998 CarswellNat 3021

-         G.A. Macdonald v. M.N.R., [1990] 2 C.T.C. 2269

-         P. De Verteuil v. Canada, [1993] 1 C.T.C. 2669

[18]     One final point should be mentioned. Mr. Blagdon made the following submission.

I feel that my situation is similar to the example given in IT-99R5 paragraph 29, which says an employee may deduct reasonable amounts paid during the year in respect of legal costs arising from an event that by its nature is a risk normally incidental to the income earning activity. In my case a long term suspension would have had a huge effect on my ability to earn income.

[19]     Section 29 of Interpretation Bulletin 99R5 reads as follows.

            An employee who is entitled to deduct expenses pursuant to paragraph 8(1)(f) (see the current version IT-522, Vehicle, Travel and Sales Expenses of Employees) may deduct reasonable amounts paid during the year in respect of legal costs arising from an event that by its nature is a risk normally incidental to the income earning activity. For example, a real estate agent may deduct legal fees in a defence against charges of misrepresentation in connection with an aborted sale of property. The legal expenses would not be deductible, however, if they were of either a capital or personal nature. An outlay incurred to protect the agent's licence to earn real estate commissions and an outlay directly attributable to an automobile accident which occurred while the automobile was being used for personal purposes are examples of expenditures of a capital and personal nature, respectively.

[20]     This section deals with the expenses of employees selling property or negotiating contracts under paragraph 8(1)(f). It really does not have anything to do with Mr. Blagdon's situation.

[21]     I feel considerable sympathy for Mr. Blagdon. The tragic accident appears not to have been his responsibility but he was forced to fight for his own professional life. Had his income from being a ship's Master been income from a business it seems probable that he could have deducted these expenses. I am sorry that I cannot help him but the law is clear.

[22]     The appeal is dismissed.

Signed at Toronto, Canada, this 8th day of February 2002.

"D.G.H. Bowman"

A.C.J.

COURT FILE NO.:                             2001-2986(IT)I

STYLE OF CAUSE:                           Between William O. Blagdon and

                                                          Her Majesty the Queen

PLACE OF HEARING:                      St. John's, Newfoundland

DATE OF HEARING:                        January 17, 2002

REASONS FOR JUDGMENT BY:     The Honourable D.G.H. Bowman

                                                          Associate Chief Judge

DATE OF JUDGMENT:                     February 8, 2002

APPEARANCES:

For the Appellant:                      The Appellant himself

Counsel for the Respondent:      Cecil Woon, Esq.

                                                John Bodurtha, Esq.

COUNSEL OF RECORD:

For the Appellant:

Name:                 --

Firm:                  --

For the Respondent:                  Morris Rosenberg

                                                Deputy Attorney General of Canada

                                                          Ottawa, Canada

2001-2986(IT)I

BETWEEN:

WILLIAM O. BLAGDON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on January 17, 2002 at St. John's, Newfoundland, by

The Honourable D.G.H. Bowman

Associate Chief Judge

Appearances

For the Appellant:                      The Appellant himself

Counsel for the Respondent:      Cecil Woon, Esq.

                                                John Bodurtha, Esq.

JUDGMENT

          It is ordered that the appeal from the assessment made under the Income Tax Act for the 1999 taxation year be dismissed.

Signed at Toronto, Canada, this 8th day of February 2002.

"D.G.H. Bowman"

A.C.J.