Docket: 2008-2965(IT)I
BETWEEN:
JOHN G. DALFORT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal
heard on August 13, 2009, at Nanaimo, British Columbia.
By: The Honourable
Justice B. Paris
Appearances:
|
For the Appellant:
|
The
Appellant himself
|
|
Counsel for the Respondent:
|
S. Natasha Reid
|
____________________________________________________________________
AMENDED JUDGMENT
The appeal from the reassessment
made under the Income Tax Act for the 2006 taxation year is dismissed.
This
Amended Judgment is issued in substitution for the Judgment signed on August
26, 2009. The Reasons for Judgment remain unchanged.
Signed at Ottawa, Canada, this 28th
day of September, 2009.
“B.Paris”
Citation: 2009 TCC 416
Date: 20090826
Docket: 2008-2965(IT)I
BETWEEN:
JOHN G. DALFORT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Paris J.
[1]
The issue in this
appeal is whether the Appellant is entitled to deduct $20,751 of legal fees in
the calculation of his income from property in the 2006 taxation year. The
legal fees were incurred by the Appellant to defend himself in a lawsuit
brought against him by Ms. Karen Conquergood, with whom he had been in a
relationship for several years.
[2]
In the lawsuit, Ms.
Conquergood made several claims
against Mr. Dalfort.
[3]
The first was for
spousal support.
[4]
The second claim by Ms.
Conquergood was that her relationship with Mr. Dalfort had unjustly enriched
him. The unjust enrichment claim related to two lawsuits which Mr. Dalfort had
brought against an insurance company and a physician, and to the sale of a
house which Mr. Dalfort had owned when the relationship with Ms. Conquergood
began. Ms. Conquergood sought a portion of the amounts Mr. Dalfort recovered in
the lawsuits, and a portion of the proceeds from the sale of the house.
[5]
Ms. Conquergood’s third
claim was for an interest in a 45-foot sailboat that Mr. Dalfort and Ms.
Conquergood had purchased jointly but which had been registered in Mr.
Dalfort’s name.
[6]
Ms. Conquergood’s
fourth claim was that Mr. Dalfort had taken more than his share of the money
that they earned from the following joint ventures they had operated at various
times when they were together:
i)
an escort agency;
ii)
a pyramid scheme; and
iii)
a crab fishing
business.
None of these joint ventures were being carried on at
the time Ms. Conquergood brought the lawsuit.
[7]
The final claim by Ms.
Conquergood against Mr. Dalfort was for damages for assault.
[8]
In the same action, Mr.
Dalfort brought a counter-claim against Ms. Conquergood for money
allegedly taken by her from their joint funds.
[9]
Mr. Dalfort’s position
is that he incurred the legal fees to protect assets from which he earned
income, and that therefore the legal fees were incurred to earn income. Mr.
Dalfort argues that he is entitled to deduct the legal fees on the basis that
he was protecting his ability to earn income from his investment portfolio,
which he referred to as his “private pension savings and investments”. He
described Ms. Conquergood’s lawsuit as an attempt to obtain money from his “pension
fund”. He said that these funds were “outside of his relationship with Ms. Conquergood”
and that the claim to a portion of those funds was not part of any application
for a division of assets on the breakdown of their relationship.
[10]
Mr. Dalfort’s appeal
cannot succeed. None of the claims made against him by Ms. Conquergood arose in
the course of a business being operated by him or in relation to property from
which he generated income, and therefore the expenses cannot be said to have
been incurred for the purpose of earning income from business or property. In
addition, the case law is clear that legal expenses incurred to defend a claim
for spousal support are not deductible.
[11]
None of the claims made
by Ms. Conquergood was directed at Mr. Dalfort’s investment portfolio. The only
time those assets are referred to in the Reasons for Judgment in the lawsuit is
in relation to fixing the amount of support payments awarded to Ms.
Conquergood. The judge took into account the income earned from the investments
in determining Mr. Dalfort’s ability to pay support to Ms. Conquergood.
[12]
I accept that, had Ms.
Conquergood been awarded damages of any magnitude in the suit, Mr. Dalfort
would likely have had to liquidate part of his investment portfolio to pay the
damages. However, the threat to those assets was indirect, and the primary
purpose for which Mr. Dalfort incurred the legal fees was to defend against
claims which were either personal in nature, or involved business activities
which had been, but were no longer, carried on by the parties. In either case
the legal fees are not deductible. Personal expenses do not meet the test set
out in paragraph 18(1)(a) of the Act, and expenses related to a
defunct business or joint venture cannot be deducted because there is no longer
any source of income to which they can be attributed.
[13]
Even if Ms. Conquergood
had sought to obtain a portion of Mr. Dalfort‘s investment portfolio, I am of
the view that the legal fees incurred to defend such a claim would not be
deductible. Their purpose would have been to protect and preserve a capital
asset or assets. Legal fees laid out for this purpose are non‑deductible
capital expenditures.
[14]
It was suggested that
the Appellant might be able to deduct the legal fees under subparagraph 60(o.1)(i)(A)
of the Act, as having been incurred to collect or establish a right to a
benefit under a pension fund. That provision reads as follows:
60. There may be deducted in
computing a taxpayer’s income for a taxation year such of the following amounts
as are applicable
(a) …
(o.1) the
amount, if any, by which the lesser of
(i) the
total of all legal expenses (other than those relating to a division or
settlement of property arising out of, or on a breakdown of, a marriage or
common-law partnership) paid by the taxpayer in the year or in any of the 7
preceding taxation years to collect or establish a right to an amount of
(A) a benefit under a
pension fund or plan (other than a benefit under the Canada Pension Plan
or a provincial pension plan as defined in section 3 of that Act) in
respect of the employment of the taxpayer or a deceased individual of whom the
taxpayer was a dependant, relation or legal representative, or
(B) …
However, there is no basis for finding that Mr. Dalfort’s
investment portfolio was a pension plan, or that he incurred the legal fees in
order to collect or establish a right to an amount of a benefit under such a
plan. By Mr.Dalfort’s own admission, the portfolio was not set up or registered
as a pension plan. It is also beyond dispute that the subject matter of the
lawsuit by Ms. Conquergood was not related to the collection or establishment
of a right to pension benefits.
[15]
For these reasons, the appeal
is dismissed.
Signed at Vancouver, British Columbia, this 26th day of August 2009.
“B.Paris”
CITATION: 2009 TCC 416
COURT FILE NO.: 2008-2965(IT)I
STYLE OF CAUSE: JOHN G. DALFORT and
HER
MAJESTY THE QUEEN
PLACE OF HEARING: Nanaimo,
British Columbia
DATE OF HEARING: August 13, 2009
REASONS FOR JUDGMENT BY: The
Honourable Justice B. Paris
DATE OF REASONS
FOR JUDGMENT: August 26, 2009
DATE OF AMENDED JUDGMENT: September 14, 2009
APPEARANCES:
|
For the Appellant:
|
The Appellant himself
|
|
Counsel for the
Respondent:
|
S. Natasha Reid
|
COUNSEL OF RECORD:
For the Appellant:
Name: N/A
Firm: N/A
For the
Respondent: John H. Sims, Q.C.
Deputy
Attorney General of Canada
Ottawa,
Canada
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