Barkley – Federal Court of Appeal finds that s. 8(1)(b) does not provide deductions of legal fees incurred to resist repaying remuneration

The three directors (two siblings and a spouse) of a corporation incurred legal fees in defending an action brought by two other siblings challenging the validity of a purported gift of the control bloc of shares of the corporation to one of the directors by the father, and seeking the repayment by them of allegedly-overpaid remuneration.

In finding that such legal expenses were not deductible under s. 8(1)(b), Webb JA stated:

The language is clear that the deduction is only available for legal expenses incurred to collect or establish the right to amounts that, if received, would be included in [employment] income. It does not apply to legal expenses incurred to allow a taxpayer to retain amounts that have already been paid.

Fenwick, which suggested a potentially broader scope for s. 8(1)(b) , was now “moot” as s. 8(1)(b) had since been relevantly amended.

Neal Armstrong. Summary of Barkley v. Canada, 2021 FCA 5 under s. 8(1)(b).