REASONS FOR JUDGMENT
Jorré J.
[1]
In his income tax return for 2011, the appellant deducted $21,609 in legal expenses.
[2]
The Minister of National Revenue disallowed the
deduction in the assessment and the appellant is appealing from the assessment.
[3]
This involves a very long story with many facts,
but the material facts are not complicated.
[4]
The appellant’s father, Guy Deschênes, died in 1997. The provisions of Mr. Deschenes’
will included the following paragraph:
[Translation]
I give and bequeath as a particular legacy
to my spouse Ghislaine Gagné my Registered Retirement Savings Plan (RRSP) to and for her own use absolutely upon my death. However, upon my death my spouse shall buy
a Registered Retirement Income Fund (RRIF) the beneficiaries of which shall be
my spouse Ghislaine Gagné and, upon her death, my children afterward.
[5]
The appellant believed that according to this
provision, Ghislaine Gagné was obliged to buy a registered retirement income
fund with some characteristics that may be found with an insurance company.
[6]
Ms. Gagné was of the opinion that she could
choose any registered retirement income fund.
[7]
The practical consequence of this disagreement
is that if the appellant was correct, Ms. Gagné would have been restricted
in the amounts that she could receive and, potentially, when Ms. Gagné
died, the appellant and Mr. Deschênes’s other children would receive more money.
[8]
This dispute was before the courts for a long
time. The courts, including the Quebec Court of Appeal in 2007, agreed with Ms.
Gagné; she can freely choose any registered retirement income fund she wants.
In 2008, the fund chosen by Ms. Gagné received the money from Mr. Deschenes’
RRSP.
[9]
However, the saga did not end there since, in 2010,
the appellant and his two brothers brought another action in the Superior
Court. This action resulted in the decision Deschênes c. Services financiers
Dundee ltée, 2011 QCCS 5954. The reasons were rendered on October 31,
2011.
[10]
The details of this saga are set out in the
reasons of Deschênes.
[11]
The legal expenses incurred in 2011, at issue, were
used in this litigation. The amount of $21,609 is one third of the legal
expenses incurred. The appellant’s two brothers paid the rest of the expenses.
[12]
Upon reading the judgment, it is clear that the
appellant was trying to debate, in another way, the same issue of the interpretation
of the will that had already been decided. The estate also presented a claim
for damages.
[13]
The appellant did not file the first page of the
motion to institute proceedings in evidence,
but the Superior Court reproduced it at paragraph 56 of Deschênes:
[Translation]…
The two main findings sought in the motion to institute proceedings are reproduced
below:
ORDER Dundee to return to Ghislaine $1,040,090
(ONE MILLION FORTY THOUSAND NINETY DOLLARS), the amount that was received
initially so that Ghislaine Gagné may specify for others a RRIF insurance
contract that will create, once it is concluded, an irrevocable claim between
the promisor Dundee and the beneficiaries Deschênes that at no point will
become part of the applicant’s patrimony all in accordance with the agreement
P-12 being a contract having the effect of res judicata;
ORDER Dundee to pay the Succession of
Guy Deschênes $122,000 (ONE HUNDRED AND TWENTY-TWO THOUSAND DOLLARS) to
reimburse the additional work of the liquidator following the Hallée Judgment,
which amount is to be established from June 1, 2008, to the end of these
proceedings;
[14]
The appellant was no more successful in 2011 than
in the past. I would also note that his appeal to the Quebec Court of Appeal
was also dismissed following motions by the respondents.
[15]
It is clear that the purpose of the expenses
incurred in 2011 by the appellant was to establish that he had certain rights
in the succession. There was also a second purpose: the succession was seeking
damages.
[16]
Under these circumstances, I do not see how
these could be deductible expenses.
[17]
In order for an expense to be deductible, two
general conditions, among others, are set out in paragraphs 18(1)(a) and
(b) of the Income Tax Act:
18(1) In computing
the income of a taxpayer from a business or property no deduction shall be made
in respect of:
(a) 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;
(b) an outlay, loss or replacement of capital, a payment on account of
capital or an allowance in respect of depreciation, obsolescence or depletion
except as expressly permitted by this Part;
[18]
This is certainly not a business expense.
[19]
A right of any kind whatever is property within
the meaning of the Act.
[20]
The appellant submits that his purpose was to
preserve property, specific rights, because, according to the appellant, these
rights have existed since his father died. However, the courts have clearly
decided that this was not correct; the appellant does not have the rights he
claimed. A person cannot preserve property that he never owned.
[21]
Consequently, the legal expenses incurred in 2011
were incurred in a new attempt to establish rights that the appellant claims to
have.
[22]
It would not be different if it were litigation
where Ms. Gagné claimed that a will covered lot A and the appellant claimed
that the will included additional rights, lot B in addition to lot A.
[23]
Even if it were an expense for the purpose of
earning income from a property, these
are capital expenses, establishing rights, and they are not deductible pursuant
to paragraph 18(1)(b).
[24]
Moreover, I do not see how, under these
circumstances, that they could be considered expenses incurred
by the taxpayer for the purpose of gaining or producing income from the
property within the meaning of paragraph 18(1)(a).
The purpose was to obtain rights that could have the consequence that upon the
death of Ms. Gagné, the appellant would receive more money. Inheriting more
money upon the death of Ms. Gagné is not income from property.
[25]
Where the expenses were incurred to obtain
damages payables to the Succession of Guy Deschênes to reimburse the additional
work of the liquidator, they are not expenses incurred for the purpose of
earning income from a property. Furthermore, a payment to the succession and
not the taxpayer was being sought.
[26]
The appellant relied heavily on 65302 British
Columbia Ltd. v. Canada,
a case involving whether an egg producer can deduct the over-quota levy. The
circumstances are very different from those here and I do not see how 65302
British Columbia could help the appellant.
[27]
The appellant also relied on Nadon v. Canada particularly paragraph 17. However,
this paragraph deals with an expense incurred in recovering an amount owing
under a pre-existing right. In this case, no such amount exists.
[28]
Consequently, given that the fees at issue are
not deductible, the appeal is
dismissed.
Signed at Toronto, Ontario, this 29th day of
August 2014.
“Gaston Jorré”
Translation certified true
on this 7th day of October 2014
Monica F.
Chamberlain, Translator
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