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Citation: 2003TCC149
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Date: 20030318
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Docket: 2002-1981(IT)I
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BETWEEN:
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JEAN LANTHIER,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] The appellant is contesting an assessment whereby he was disallowed a deduction for an amount of $4,828 in respect of legal expenses that he incurred in his 2000 taxation year for the purpose of having the support that he paid to his former spouse for their children reduced.
[2] His main ground of objection is that he finds it unfair that legal expenses are a deductible expense for a person who wishes to collect support, while legal expenses incurred in order to have such support reduced are not deductible. The legal expenses incurred in order to have the support amount reduced are not deductible under the Income Tax Act (the "Act") since they are not an expense made or incurred for the purpose of gaining or producing income from a business or property. They are personal or living expenses that are not deductible under subsection 9(1) and paragraphs 18(1)(a) and 18(1)(h) of the Act.
[3] Moreover, a long line of authority has established that legal expenses incurred to enforce a pre-existing right to support or to contest a motion for the reduction of support are deductible (see R. v. Burgess, [1982] 1 F.C. 849 (Q.L.) and Sabour v.Canada, [2001] T.C.J. No. 783 (Q.L.); the Sabour decision refers to a number of decisions to that effect; see also Interpretation Bulletin IT-99R5 (Consolidated), Legal and Accounting Fees, dated December 5, 2000).
[4] The deduction would be allowed under paragraph 18(1)(a) of the Act since the legal expenses would be made or incurred by the support recipient for the purpose of gaining or producing income from property. The right to support being recognized in family law and in the Divorce Act, it would be property within the broadened meaning of the term as defined in subsection 248(1) of the Act.
[5] Moreover, since support as defined in subsection 56.1(4) of the Act is excluded from the concept of exempt income that is found in subsection 248(1) of the Act, this expense would not be prohibited by the application of paragraph 18(1)(c) of the Act.
[6] These sections read as follows:
SECTION 18: General limitations.
(1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of
418(1)(a)3
(a) General limitation - 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 the business or property;
418(1)(c)3
(c) Limitation re exempt income - an outlay or expense to the extent that it may reasonably be regarded as having been made or incurred for the purpose of gaining or producing exempt income or in connection with property the income from which would be exempt;
SECTION 56.1: Support.
456.1(4)3
(4) Definitions. The definitions in this subsection apply in this section and section 56.
"support amount" - "support amount" means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and
(a) the recipient is the spouse or common-law partner or former spouse or common-law partner of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage or common-law partnership and the amount is receivable under an order of a competent tribunal or under a written agreement; or
(b) the payer is a natural parent of a child of the recipient and the amount is receivable under an order made by a competent tribunal in accordance with the laws of a province.
SECTION 248: [Interpretation].
(1) Definitions. In this Act,
"exempt income" - "exempt income" means property received or acquired by a person in such circumstances that it is, because of any provision of Part I, not included in computing the person's income, but does not include a dividend on a share or a support amount (as defined in subsection 56.1(4));
"property" - "property" means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes
(a) a right of any kind whatever, a share or a chose in action,
(b) unless a contrary intention is evident, money,
(c) a timber resource property, and
(d) the work in progress of a business that is a profession;
[7] The legitimacy of the right to a deduction for legal expenses in the hands of the support recipient was put in doubt by Judge Archambault of this Court in Bergeron v. Canada, [1999] T.C.J. No. 510 (Q.L.). According to Judge Archambault, it is just as much a personal or living expense for the support recipient as it is for the support payer. In his opinion, there is no specific provision in the Act that authorizes the deduction of legal expenses either for the support payer or for the support recipient.
[8] In Sabour, supra, Judge Bowie of this Court wrote as follows regarding the position taken by Judge Archambault in Bergeron:
[10] As Archambault J. has said, the line of reasoning that he developed in Bergeron was not specifically considered in any of the decided cases. Nevertheless, I believe that such a long line of authority in this Court, endorsed as it has been by the Federal Court of Appeal, should be followed until it has been overruled by a higher Court, or the Act has been amended by Parliament. It is not totally irrelevant to this conclusion that the position of the Minister, as expressed in Interpretation Bulletin IT-99R5, paragraphs 17 to 20, is that legal fees spent to obtain support amounts from a spouse or a former spouse are deductible, so long as the amounts are not capital amounts, on the authority of Burgess.
[9] Thus, in the case at bar, it is clear that as the support payer, the appellant is not entitled to deduct his legal expenses because there is no provision in the Act authorizing the deduction of legal expenses made or incurred for the purpose of reducing the support payable. It is not an expense made or incurred for the purpose of gaining or producing income from property.
[10] What the appellant seeks is fair treatment for all. As the Act is structured, and according to the reasoning of Judge Archambault in Bergeron, no one should be entitled to legal expenses. If that is the case, I agree with Judge Bowie that such a lack of fairness can be redressed only by a decision of a superior court or a legislative amendment of Parliament.
[11] The lack of fairness does not enable me, however, to allow the appellant, who in the case at bar is the support payer, a deduction for legal expenses. If the enactment, which, according to the case law, makes legal expenses deductible in the hands of the support recipient (to the extent that the recipient is not seeking to establish his or her right to support, in which case it would be an expense of a capital nature and would not be deductible), was found to be discriminatory, the result would be to make legal expenses non-deductible for the support recipient in every case. This would not necessarily help the appellant's case since he, too, would not be entitled to deduct his legal expenses under the Act.
[12] For these reasons, I cannot accept the appellant's arguments and give him the right to a deduction that the Act does not provide for.
[13] The appeal is dismissed.
Signed at Ottawa, Canada, this 18th day of March 2003.
J.T.C.C.
Translation certified true
on this 28th day of April 2004.
Sophie Debbané, Revisor
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