Bell,
J.T.C.C.:—The
issues
in
this
appeal
in
respect
of
the
1987,
1988,
1989
and
1990
taxation
years
were
threefold:
1.
deductibility
of
retail
sales
tax
owing
on
purchases
of
video
games
and
related
equipment,
2.
deductibility
of
legal
costs
relating
to
F.T.G.
Enterprises,
and
3.
interest
charged
by
the
Department
of
National
Revenue
as
a
result
of
these
reassessments.
At
the
hearing,
respondent's
counsel
stated
that
the
first
issue
had
been
resolved
by
the
respondent
accepting
the
appellant's
position.
With
regard
to
the
second
issue,
the
appellant
had
incurred
legal
costs
in
connection
with
a
domestic
issue
and
in
connection
with
regaining
an
interest
in
a
business
owned
by
him
and
his
wife.
He
had
claimed
40
per
cent
of
such
legal
costs,
namely
$3,846
as
a
deduction
from
his
1987
income
on
the
basis
that
they
were
incurred
for
the
purpose
of
gaining
or
producing
income
within
the
meaning
of
paragraph
18(1)(a)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
The
respondent
submitted
that
such
legal
fees
were
not
incurred
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property
but
were
personal
or
living
expenses
within
the
meaning
of
paragraph
18(1)(h)
of
the
Act.
The
final
issue
to
be
decided
is
whether
the
appellant
is
liable
to
pay
interest
for
the
1987,
1988,
1989
and
1990
taxation
years
pursuant
to
the
provisions
of
subsection
161(1)
of
the
Act.
Dealing
first
with
the
matter
of
legal
costs,
I
accept
the
evidence
of
the
appellant
with
respect
to
the
purpose
for
which
they
were
expended
in
the
amount
of
$3,846,
that
figure
not
having
been
challenged
by
the
respondent.
However,
such
fees
were
expended
to
gain
an
interest
in
the
business
from
which
income
would
be
earned
and
accordingly
constitute
a
capital
expense.
They
are
not
expenses
incurred
for
the
purpose
of
gaining
or
producing
income
within
the
meaning
of
paragraph
18(1
)(a)
of
the
Act
but
being
capital,
should
be
added
to
the
cost
of
the
property
with
the
ultimate
result
of
reducing
any
capital
gain
on
the
sale
thereof.
With
respect
to
interest
payable
on
tax
owing
for
the
1987
taxation
year,
subsection
161(1)
of
the
Act
states
clearly,
.
.
.
the
person
liable
to
pay
the
tax
shall
pay
to
the
Receiver
General
interest
at
the
prescribed
rate
on
the
excess
computed
for
the
period
during
which
that
excess
is
outstanding.
There
is
no
discretion
in
this
Court
to
grant
any
relief
in
respect
of
the
interest
obligation
thereby
created,
the
word
"shall"
being
mandatory
and
there
being
no
other
relieving
section
in
the
Act.
Accordingly,
the
appellant
cannot
succeed
on
this
aspect
of
his
appeal.
In
summary,
therefore,
1.
the
appellant
is
entitled
to
the
relief
sought
by
him
in
respect
of
capital
cost
allowance
on
the
first
issue
stated
above,
2.
legal
fees
in
the
amount
of
$3,846
are
not
deductible
on
a
current
basis
in
the
year
incurred
but
are
added
to
the
adjusted
cost
base
of
the
property
acquired
in
respect
of
which
such
fees
were
incurred,
and
3.
the
appellant
is
not
entitled
to
relief
in
respect
of
his
claim
that
no
interest
is
payable
for
the
four
years
under
appeal,
the
interest
payable
to
be
recomputed
in
view
of
the
conclusions
herein.
Appeal
allowed
in
part.
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