Citation: 2007TCC747
Date: 20071213
Docket: 2007-2284(IT)I
BETWEEN:
SERGE BEAUCHAMP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] This is an appeal
for the 2005 taxation year concerning a claim for legal expenses. According to
the appellant, these legal expenses were incurred for the purpose of claiming
support for his children. According to the respondent, the appellant incurred
these expenses to settle a dispute concerning the custody of the children and to
defend against an application for support.
[2] As Exhibit A-1, the
appellant submitted a motion dated November 8, 2005, in which he was the applicant
and his former spouse was the respondent. This was a motion for custody of
their two children in which he requested, among other things, that the amount
of support the respondent was to pay for the two children be determined. The
document filed contains an impressive number of paragraphs in which there are
only ellipses. One can only wonder if this document is a photocopy of an
authentic document. However, this is not the determinative reason for my
decision.
[3] As evidence of the
legal expenses incurred, two documents enclosed with the appellant's income tax
return for the year 2005 were submitted as Exhibit I-1.
[4] The first document
is a photocopy of a lawyer's invoice for the period from September 15, 2004, to October 31, 2005,
in the amount of $13,806.72.
[5] The second document
is a letter dated February 20, 2006, from the lawyer who prepared the abovementioned motion, Exhibit A-1.
It should be noted that the lawyer does not in any way indicate that the
appellant had filed a motion for child support. The following statement appears
in the letter:
[translation]
We have represented the interests of Serge Beauchamp in defence
against Manon Clair in the matter of a motion to modify and revise child
support.
In 2005, Mr. Beauchamp had to pay $6,187.53 for professional fees,
judicial disbursements and taxes.
. . .
[6] The civil court
ledger concerning matrimonial litigation between the appellant and his former
spouse was filed as Exhibit I-3. It shows that the appellant's motion was
apparently filed on November 23, 2005.
[7] The parties signed
an agreement (Exhibit I-2) on December 7, 2006. On that same day, a judge of the Quebec
Superior Court gave effect to that agreement and also ruled on the outstanding
issues, including the question of making the support retroactive to
October 2004. According to this decision endorsing an agreement, the
appellant would continue to pay support for the children.
Analysis and conclusion
[8] The appellant relies
on an excerpt from paragraph 17 of Interpretation Bulletin IT-99R5:
. . . However, since children have a pre-existing right, arising
from
legislation, to support or maintenance, legal costs to obtain an
order for
child support are deductible . . .
[9] However, the court
ledger and the exhibits filed show that the appellant's motion for child
support lasted only one day in a series of proceedings in which the former
spouse was the applicant seeking child support. If the appellant ever applied
for child custody and support, he did not pursue it. The lawyer who allegedly drafted this motion did not
mention it in her letter, nor did she indicate a specific amount for drafting
and filing the motion. The appellant brought several motions, but these were to
assert and regulate his access rights to his children. It seems that right from
the start, child custody had been granted to the mother of the children by mutual
consent.
[10] The court ledger and the various proceedings
filed concerning this family litigation clearly show that the appellant was
always a respondent in connection with the claim for child support. He could
have been the moving party with regard to access rights and the enforcement of
the agreements, but not in connection with support.
[11] The case law of this
Court is fully against the deduction of legal costs by the person who is a
respondent in a claim for support. Under section 9 and paragraph 18(1)(a)
of the Income Tax Act, legal
expenses may be deducted by the person who applies for support which will be
added to his or her income.
[12] It is to be noted
that although child support paid under an agreement concluded after April 1997
is not included in the calculation of the income of the parent receiving child
support, the deduction of legal costs by the person to whom child support is
paid, is accepted. On this point, I quote paragraph 19 of Interpretation
Bulletin IT-99R5:
19. The legal costs described in 18 above
are deductible even though an amount received as a "child support
amount," as described in subsection 56.1(4), is not included in the income of the recipient. While
"exempt income" in subsection 248(1) is defined as property
received or acquired that is not included in income, the definition excludes
"support amounts"; therefore, the deduction of costs incurred in
respect of support amounts is not denied by virtue of paragraph 18(1)(c)
as being exempt income. For a discussion of "support amount" and
"child support amount," see the current
version of IT-530, Support Payments.
[13] I quote paragraphs 18, 28, 29, 32, 33 and 34 of the judgment
of the Federal Court of Appeal in Nadeau v. R., 2003 FCA 400, which
explain the application of the Act, particularly paragraphs 18(1)(a) and
18(1)(c), to the deduction of legal expenses for support claims:
18 Conversely, the expenses incurred by
the payer of support (either to prevent it from being established or increased,
or to decrease or terminate it) cannot be considered to have been incurred for
the purpose of earning income, and the courts have never recognized any right
to the deduction of these expenditures (see, for example, Bayer, supra).
. . .
28 The income from
support is a clear illustration of how two seemingly distinct sources may link
up with one another. Although the taxation of support payments as income is
explicitly provided for in subdivision d, which deals with "Other
Sources", it remains that the right to support is "property"
under the Act. If the right to support is "property", it is hard to
dissociate this "property" from the income which flows from the
exercise of this right. That is where lies the statutory authority invoked by
the courts, over the years, to allow the deduction of costs pertaining to
support in the circumstances we have seen by invoking subdivision b and in
particular paragraph 18(1)(a).
29 . . . I have little
difficulty in finding that income from a support payment is income from
property and that as such the expenses incurred in obtaining the payment
thereof may be deducted under the rules set out in subdivision b.
. . .
33 To maintain the
right to the deduction, Parliament amended the definition of "exempt
income" in subsection 248(1) to exclude the part of the support that is
intended for children, even if it is now non-taxable. Clearly, this amendment
would be pointless if Parliament was of the view that income from support was
not income from property within the meaning of
subdivision b.
34 It appears from this that not only has Parliament accepted the
solution adopted by the courts over the years, it has intervened to preserve
that solution when confronted with an amendment that effectively would have
precluded it. This jurisprudential solution, I repeat, is a function of the
fact that the income from a support payment is income from property, and as
such the expenses incurred in order to earn this income may be deducted.
[14] In the case at bar,
the appellant has not established that the legal expenses incurred by him, or
even part of these expenses, were incurred for the purposes of claiming support
for him or for his children. Therefore, these expenses were personal in nature,
because they were not incurred for the purpose of earning income from property.
[15] Accordingly, the
appeal must be dismissed.
Signed at Ottawa, Canada, this
13th day of December 2007.
"Louise Lamarre Proulx"
Translation
certified true
on this 1st day
of February 2008
Michael Palles,
Reviser
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