Kempo,
T.C.J.:—The
appeals
of
Mario
Cormier
involved
his
1983
and
1984
taxation
years
wherein
on
reassessment
the
respondent
had
disallowed
expenses
claimed
for
legal
fees
of
$5,000
in
1983
and
$12,362
in
1984
on
the
assumptions
(as
per
clause
3
of
the
reply
to
notice
of
appeal)
that:
(a)
the
amounts
which
the
appellant
sought
to
deduct
were
not
amounts
paid
by
the
appellant;
[this
issue
was
not
pursued
at
the
hearing]
(b)
the
amounts
which
the
appellant
sought
to
deduct
were
not
paid
in
respect
of
fees
or
expenses
incurred
in
preparing,
instituting
or
prosecuting
an
objection
to
or
an
appeal
in
relation
to
an
assessment
of
tax,
interest
or
penalties
under
the
Income
Tax
Act;
(c)
the
amounts
which
the
appellant
sought
to
deduct
were
paid
in
respect
of
fees
or
expenses
incurred
in
the
unsuccessful
defence
of
criminal
charges
brought
against
the
appellant
for
wilfully
evading
or
attempting
to
evade
payment
of
taxes
imposed
by
the
Income
Tax
Act
and
in
unsuccessfully
appealing
from
his
conviction
for
such
offences.
The
rest
of
the
reply
read
as
follows:
B.
The
statutory
provisions
upon
which
the
respondent
relies
and
the
reasons
which
he
intends
to
submit
4.
The
respondent
relies,
inter
alia,
on
sections
3,
18(1)(a)
and
(h)
and
60(0)
of
the
Income
Tax
Act.
5.
The
respondent
submits
that
the
appellant
is
entitled
to
deduct
pursuant
to
section
60(o)
of
the
Income
Tax
Act,
in
respect
of
fees
or
expenses
incurred
in
preparing,
instituting
or
prosecuting
an
objection
to
or
an
appeal
in
relation
to
an
assessment
of
tax,
interest
or
penalties
under
the
Income
Tax
Act
|
(a)
for
the
1983
taxation
year
|
$
500.00
|
|
(b)
for
the
1984
taxation
year
|
1,825.00
|
|
$2,325.00
|
6.
The
respondent
further
submits
that
the
additional
amounts
claimed
of
$4,500.00
for
1983
and
$10,537.00
for
1984
are
not
deductible
as
they
were
not
paid
in
respect
of
fees
or
expenses
incurred
in
preparing,
instituting
or
prosecuting
an
objection
to
or
an
appeal
in
relation
to
an
assessment
of
tax,
interest
or
penalties
under
the
Income
Tax
Act.
WHEREFORE
the
respondent
submits
that,
to
the
extent
of
the
expenses
exceeding
those
in
paragraph
5,
this
appeal
be
dismissed.
Facts
No
viva
voce
evidence
was
called
at
trial.
Rather
an
agreed
statement
of
facts
with
appendages
was
entered
and
legal
submissions
and
argument
followed.
The
agreed
facts
were
as
follows:
Agreed
Statement
of
Facts
The
parties
hereto,
by
their
respective
solicitors,
agree
as
follows:
1.
The
appellant
is
an
individual
who
resides
in
the
Municipality
of
Surrey,
in
the
Province
of
British
Columbia.
2.
The
appellant,
at
all
material
times,
was
engaged
in
the
business
of
installing
insulation
as
a
subcontractor
for
Westminster
Installation
Ltd.
3.
By
Notices
of
Reassessment
dated
March
21,
1983
the
respondent
notified
the
appellant
that
he
had
been
assessed
to
tax
and,
pursuant
to
s.
162(2)
of
the
Income
Tax
Act
(the
"Act"),
penalties
with
respect
to
his
1976
to
1981
taxation
years,
inclusive,
on
the
basis
that
he
had
failed
to
include
in
computing
his
income
the
following
amounts,
respectively:
|
1976
|
$29,519.99
|
|
1977
|
31,970.58
|
|
1978
|
32,627.66
|
|
1979
|
56,981.43
|
|
1980
|
51,266.03
|
|
1981
|
37,975.11
|
4.
The
appellant
filed
Notices
of
Objection
to
each
of
the
said
Notices
of
Reassessment
in
respect
of
the
said
tax
and
penalties
assessed
and
by
an
Order
dated
January
23,1984
the
Tax
Court
of
Canada
deemed
the
said
Notices
of
Objection
to
be
valid.
5.
By
information
dated
August
21,
1983
the
Appellant
was
charged
pursuant
to
the
provisions
of
s.
239
of
the
Act
that
he,
per
count
1,
evaded
compliance
with
the
Act
by
failing
to
declare
income
in
the
amount
of
$240,090.80
received
by
him
in
his
1976
to
1981
taxation
years,
contrary
to
s.
238(1)(d),
and,
in
counts
2
through
7,
that
he
made
false
or
deceptive
net
income
statements,
contrary
to
s.
239(1)(a),
in
each
of
his
1976
through
1981
taxation
years
by
failing
to
report
additional
income
in
the
following
amounts:
|
1976
|
$29,519.99
|
|
1977
|
31,970.58
|
|
1978
|
32,627.66
|
|
1979
|
56,981.43
|
|
1980
|
51,266.03
|
|
1981
|
37,975.11
|
A
copy
of
the
said
information
is
appended
to
this
Agreed
Statement
of
Facts
as
Appendix
A.
6.
The
respondent
held
the
performance
of
his
duty,
pursuant
to
s.
165(3)
of
the
Act,
to
confirm,
vacate,
or
vary
the
assessments
to
tax
and
penalties
in
the
said
reassessments
in
abeyance
until
the
disposition
of
the
said
s.
239
charges
was
finalized.
7.
The
hearing
of
the
said
section
239
charges
was
heard
by
His
Honour
Judge
E.D.
Scarlett
of
the
Provincial
Court
of
British
Columbia
in
February
of
1984.
The
appellant
was
represented
by
legal
counsel
at
the
said
hearing.
In
defence
of
the
said
charges
the
appellant
gave
evidence
that
his
income
from
his
subcontracting
business
was
less
than
that
alleged
by
the
Crown,
and
was
as
set
out
in
his
returns
of
income,
because
in
the
course
of
carrying
on
his
subcontracting
business
he
had
employed
and
paid
wages
to
certain
assistants
and
that
he
deducted
such
amounts
in
computing
his
income
from
the
said
business.
Other
witnesses
gave
evidence
supporting
the
appellant's
evidence
that
he
employed
and
paid
wages
to
certain
assistants.
His
Honour
Judge
E.D.
Scarlett
dismissed
count
1,
as
it
was
a
global
charge
which
encompassed
all
of
the
other
charges
that
followed,
and,
although
acknowledging
that
the
appellant
had
employed
and
paid
wages
to
assistants,
convicted
the
appellant
on
counts
2
through
7
of
the
said
information
on
the
basis
that
in
each
of
the
relevant
years
the
appellant
failed
to
include
amounts
in
income
and
imposed
a
fine
on
the
appellant
pursuant
to
s.
239(1)
of
the
Act
in
the
total
amount
of
$62,000.
8.
The
appellant
appealed
his
convictions
on
counts
2
through
7
to
the
County
Court
of
Westminster.
The
appeal
was
heard
on
December
18,
1984
and
December
24,
1984.
By
reasons
dated
March
15,
1985
the
Honourable
Judge
D.A.
Hogarth
dismissed
the
appellant's
appeal.
9.
The
appellant
appealed
the
decision
of
the
Honourable
Judge
D.A.
Hogarth
to
the
British
Columbia
Court
of
Appeal
and
by
judgment
dated
August
15,
1986
that
Court,
acknowledging
that
the
appellant
had
employed
and
paid
assistants
in
the
course
of
his
subcontracting
business,
amended
the
said
convictions
to
reduce
the
amounts
of
unreported
additional
income
as
follows:
Count
2-from
$29,519.99
to
$25,044.80
Count
3-from
$31,970.58
to
$27,208.49
Count
4-from
$32,627.66
to
$27,558.83
Count
5-from
$56,981.43
to
$43,591.75
Count
6-from
$51,266.03
to
$43,033.15
Count
7-from
$37,975.11
to
$31,653.29
but
in
all
other
respects
dismissed
the
appellant's
appeal.
10.
The
appellant
applied
for
leave
to
the
Supreme
Court
of
Canada
to
appeal
the
judgment
of
the
British
Columbia
Court
of
Appeal
but
by
a
judgment
rendered
the
24th
day
of
November,
1986
the
appellant's
Motion
for
Leave
to
Appeal
was
dismissed
by
the
Supreme
Court
of
Canada.
11.
By
Notice
of
Confirmation
dated
December
24,
1986
the
reassessments
were
confirmed
and
that
the
said
amounts,
as
set
out
in
paragraph
3
hereof,
were
properly
included
in
the
appellant's
income.
12.
Pursuant
to
the
provisions
of
subsection
172(2)
of
the
Act,
the
appellant
appealed
to
the
Federal
Court
of
Canada,
Trial
Division,
to
have
the
said
reassessments
vacated
by
filing
therewith
a
Statement
of
Claim.
13.
The
respondent
duly
filed
a
Statement
of
Defence
to
the
said
Statement
of
Claim.
At
the
date
of
this
Agreed
Statement
of
Facts
the
hearing
of
that
action
has
not
as
yet
been
heard.
14.
In
his
1983
and
1984
taxation
years
the
appellant
paid
fees
of
$5,000
and
$12,362,
respectively,
for
legal
services
in
preparing
and
instituting
the
objections,
defence,
and
appeals
in
relation
to
the
assessments
of
tax
and
penalties
and
in
relation
to
the
charges
under
s.
239
and
imposition
of
fines
set
out
in
paragraphs
3
through
8
hereof.
The
invoices
rendered
to
the
appellant
in
respect
of
the
said
fees
are
attached
hereto
as
Appendices
"B"
through
"H".
15.
In
his
1983
and
1984
taxation
years
$500
and
$1,825,
respectively,
of
the
said
fees
paid
by
the
appellant
for
legal
services
were
clearly
paid
for
preparing,
instituting,
or
prosecuting
an
objection
to
an
appeal
in
relation
to
the
Notices
of
Reassessment
set
out
in
paragraph
3
hereof,
and
the
respondent
concedes
that
these
amounts
are
deductible
pursuant
to
the
provisions
of
s.
60(0)
of
the
Act
in
computing
the
appellant's
income
for
those
years.
16.
The
remainder
of
the
said
fees,
being
$4,500
and
$11,537
in
1983
and
1984,
respectively,
relates
to
the
defence
in
the
Provincial
Court
of
British
Columbia
to
the
charges
laid
against
the
appellant
under
s.
239
of
the
Act
and
to
an
appeal
against
the
appellant's
conviction
on
counts
2
through
7
to
the
County
Court
of
Westminster.
Appendix
"A"
to
the
agreed
statement
of
facts
detailed
the
charges
that
the
appellant:
COUNT
1:
Between
the
31st
day
of
December,
A.D.,
1975
and
the
1st
day
of
May,
A.D.,
1982,
unlawfully
did
wilfully
evade
the
compliance
with
the
Income
Tax
Act,
R.S.C.
1952,
Chapter
148
as
amended,
or
payment
of
taxes
imposed
by
the
said
Income
Tax
Act
by
failing
to
declare
income
received
by
hin
in
the
amount
of
$240,090.80
in
the
taxation
years
1976,
1977,
1978,
1979,
1980,
and
1981,
and
did
thereby
commit
an
offence
contrary
to
Section
239(1)(d)
of
the
said
Income
Tax
Act.
COUNT
2:
On
or
about
the
30th
day
of
April,
A.D.,
1977,
unlawfully
did
make
a
false
or
deceptive
statement
in
his
return
of
income
for
the
1976
taxation
year,
filed
as
required
by
the
Income
Tax
Act,
R.S.C.
1952,
Chapter
148
as
amended,
by
stating
that
his
net
income
for
the
said
year
was
$14,491.81,
which
statement
was
false
or
deceptive
by
reason
that
it
failed
to
report
additional
income
received
by
him
in
the
amount
of
$29,519.99,
and
did
thereby
commit
an
offence
contrary
to
Section
239(1)(a)
of
the
said
Income
Tax
Act.
COUNT
3:
On
or
about
the
30th
day
of
April,
A.D.,
1978,
unlawfully
did
make
a
false
or
deceptive
statement
in
his
return
of
income
for
the
1977
taxation
year,
filed
as
required
by
the
Income
Tax
Act,
R.S.C.
1952,
Chapter
148
as
amended,
by
stating
that
his
net
income
for
the
said
year
was
$15,957.94,
which
statement
was
false
or
deceptive
by
reason
that
it
failed
to
report
additional
income
received
by
him
in
the
amount
of
$31,970.58,
and
did
thereby
commit
an
offence
contrary
to
Section
239(1)(a)
of
the
said
Income
Tax
Act.
COUNT
4:
On
or
about
the
30th
day
of
April,
A.D.,
1979,
unlawfully
did
make
a
false
or
deceptive
statement
in
his
return
of
income
for
the
1978
taxation
year,
filed
as
required
by
the
Income
Tax
Act,
R.S.C.
1952,
Chapter
148
as
amended,
by
stating
that
his
net
income
for
the
said
year
was
$16,509.37,
which
statement
was
false
or
deceptive
by
reason
that
it
failed
to
report
additional
income
received
by
him
in
the
amount
of
$32,377.66,
and
did
thereby
commit
an
offence
contrary
to
Section
239(1)(a)
of
the
said
Income
Tax
Act.
COUNT
5:
On
or
about
the
30th
day
of
April,
A.D.,
1980,
unlawfully
did
make
a
false
or
deceptive
statement
in
his
return
of
income
for
the
1979
taxation
year,
filed
as
required
by
the
Income
Tax
Act,
R.S.C.
1952,
Chapter
148
as
amended,
by
stating
that
his
net
income
for
the
said
year
was
$16,513.57,
which
statement
was
false
or
deceptive
by
reason
that
it
failed
to
report
additional
income
received
by
him
in
the
amount
of
$56,981.43,
and
did
thereby
commit
an
offence
contrary
to
Section
239(1)(a)
of
the
said
Income
Tax
Act.
COUNT
6:
On
or
about
the
30th
day
of
April,
A.D.,
1981,
unlawfully
did
make
a
false
or
deceptive
statement
in
his
return
of
income
for
the
1980
taxation
year,
filed
as
required
by
the
Income
Tax
Act,
R.S.C.
1952,,
Chapter
148
as
amended,
by
stating
that
his
net
income
for
the
said
year
was
$30,138.00,
which
statement
was
false
or
deceptive
by
reason
that
it
failed
to
report
additional
income
received
by
him
in
the
amount
of
$51,266.03,
and
did
thereby
commit
an
offence
contrary
to
Section
239(1)(a)
of
the
said
Income
Tax
Act.
COUNT
7:
On
or
about
30th
day
of
April,
A.D.,
1982
unlawfully
did
make
a
false
or
deceptive
statement
in
his
return
of
income
for
the
1981
taxation
year,
filed
as
required
by
the
Income
Tax
Act,
R.S.C.
1952,
Chapter
148
as
amended,
by
stating
that
his
net
income
for
the
said
year
was
$24,264.30,
which
statement
was
false
or
deceptive
by
reason
that
it
failed
to
report
additional
income
received
by
him
in
the
amount
of
$37,975.11,
and
did
thereby
commit
an
offence
contrary
to
Section
239(1)(a)
of
the
said
Income
Tax
Act.
Counsel
for
the
respondent
tendered
the
following
unrebutted
factual
information
for
the
assistance
of
the
Court:
And,
Your
Honour,
it's
at
this
point
of
that
I
would
like
to
clarify
somewhat
the
Agreed
Statement
of
Facts.
It's
not
that
I’m
disagreeing
with
anything
that's
in
here,
but
I
would
just
like
to
perhaps
clarify
what
happened.
It
is
correct,
as
stated
in
paragraph
9
of
the
Agreed
Statement
of
Facts
that
the
B.C.
Court
of
Appeal
amended
the
convictions
by
reducing
the
amounts
of
unreported
income
as
set
out
in
paragraph
9.
However,
the
reason
for
the
amendments
dates
back
to
the
time
of
Mr.
Cormier's
sentencing
in
the
first
instance,
in
the
Provincial
Court
by
Mr.
Justice
Scarlett.
At
that
time
the
prosecutor
submitted
a
schedule
which
showed
that
Mr.
Cormier
did
personally
receive
about
90
per
cent
of
the
amounts
of
unreported
income.
And,
therefore,
Mr.
Justice
Scarlett,
from
the
amount
of
the
fine
that
he
imposed
on
Mr.
Cormier,
appeared
to
accept
that
about
10
per
cent
of
the
unreported
income
may
have
been
paid
to
helpers
by
Mr.
Cormier.
However,
both
Mr.
Justice
Scarlett
and
the
County
Court
judge
neglected
to
amend
the
Counts
by
taking
off
the
10
per
cent
of
the
amounts
of
unreported
income.
And
the
B.C.
Court
of
Appeal
merely
sought
to
remedy
this
oversight
in
amending
the
convictions
as
set
out
in
paragraph
9
of
the
Agreed
Statement
of
Facts.
I’m
sure
Mr.
Swan
will
correct
me
if
I’m
mistaken
in
any
of
this.
The
remaining
90
per
cent
of
the
unreported
income
remains
just
that,
income
which
was
received
by
the
appellant
and
not
reported.
As
found
by
the
three
levels
of
the
Provincial
Courts,
Mr.
Cormier
unlawfully
made
false
and
deceptive
statements
in
his
income
tax
returns
by
failing
to
report
these
very
substantial
amounts
of
his
income.
According
to
my
calculations
based
on
the
net
income
figures
in
the
information
and
the
amended
amounts
of
unreported
income
as
set
out
in
paragraph
9
of
the
Agreed
Statement
of
Facts,
Mr.
Cormier,
in
1976
only
reported
38
per
cent
of
his
income.
In
1977,
only
37
per
cent;
in
1978,
again,
37
per
cent;
in
1979
only
25
per
cent;
in
1980,
41
per
cent;
and
in
1981,
43
per
cent.
His
defence
in
the
Criminal
Court,
that
he
paid
these
amounts
to
helpers,
was
with
respect
to
the
90
per
cent
of
these
amounts
found
by
all
the
Courts,
or
the
three
levels
of
the
Courts,
which
included
six
judges,
to
be
untrue
beyond
a
reasonable
doubt.
[Transcript,
p.
28.
1.
21
to
p.
30,
1.
14]
Counsel
for
the
respondent
also
confirmed
that
no
reassessments
had
been
issued
to
conform
to
the
reduced
amounts
as
reflected
in
paragraph
9
of
the
agreed
statement
of
facts.
Submissions
For
the
Appellant
(1)
Profit
is
ordinarily
determined
in
accordance
with
generally
accepted
accounting
principles
and
the
subject
legal
expenses
incurred
by
the
appellant
arose
directly
from
his
practice
of
computing
his
income
from
his
business
and
a
defence
of
that
practice
and
as
a
result
of
defending
his
practice
of
paying
assistants
and
employees
in
computing
his
income
from
a
subcontracting
business.
Therefore
paragraph
18(1)(a)
would
apply
to
permit
such
deductions.
The
case
of
Ben
Matthews
&
Associates
Limited
v.
M.N.R.,
[1988]
1
C.T.C.
2372;
88
D.T.C.
1262
(T.C.C.)
is
on
all
fours
with
the
case
of
the
appellant
in
that,
inter
alia,
there
was
a
nexus
between
the
legal
fees
incurred
and
the
unlawful
business
activity.
(2)
Alternatively,
the
legal
fees
were
deductible
under
subsection
60(o)
of
the
Act
because
the
purpose
for
laying
charges
under
section
239
of
the
Act
was
to
assess
or
impose
penalties
upon
the
taxpayer
thereunder,
the
charges
were
brought
in
relation
to
assessments
thereunder,
and
the
appellant
should
be
seen
as
having
prosecuted
objections
thereto.
The
section
239
charges
were
so
interrelated
and
integrated
with
assessments
of
tax
and
section
163
penalties
(the
basic
and
underlying
facts
being
essentially
identical
to
both)
that
legal
preparation
must
effectually
be
identical
to
both.
In
the
end
what
it
really
came
down
to
was
an
objection,
or
an
appeal,
in
its
broadest
sense
in
relation
to
an
assessment
of
tax
or
penalties
under
the
Act
within
the
meaning
of
subsection
60(o).
Further,
the
meaning
of
the
terms
"objection"
and
“appeal”
and
"assessment"
should
not
be
confined
to
fiscal
nomenclature
but
rather
should
include
their
normal
and
ordinary
meaning
which
is
much
broader
in
scope.
(3)
In
the
further
alternative,
if
the
laying
of
the
section
239
charges
were
only
allegations
and
not
assessments,
then
subsection
60(o)
would
permit
deduction
of
legal
fees
incurred
following
the
imposition
or
"assessment"
of
fines
or
penalties
under
the
Act
by
the
Provincial
Court
judge.
In
this
case
it
would
be
for
legal
fees
in
respect
of
“objection”
and/or
"appeal"
to
the
British
Columbia
County
Court,
the
Court
of
Appeal
and
leave
to
appeal
to
the
Supreme
Court
of
Canada.
For
the
Respondent
(1)
The
appellant
was
charged
under
section
239
with
making
false
and
deceptive
statements
which
hid
income.
The
failure
to
report
large
amounts
of
income
is
not
an
activity
which
is
normal
in
the
course
of
business
operations.
The
appellant
was
not
charged
and
convicted
of
unlawfully
employing
and
paying
wages
to
helpers
but
of
making
false
and
deceptive
statements
which
hid
amounts
of
his
income.
He
was
not
defending
an
income
earning,
or
business
related,
or
working
type
of
activity
which
is
a
requirement
for
deductibility
under
paragraph
18(1)(a)
of
the
Act.
The
Ben
Matthews
&
Associates
Limited
case,
supra,
is
distinguishable
on
its
facts
as
that
taxpayer
had
successfully
defended
an
activity
arising
out
of
inventory
valuation
activities
with
full
disclosure
having
been
made
in
its
record
keeping,
all
of
which
arose
in
the
normal
course
of
business
operations.
Failure
to
report
income,
as
in
the
case
at
bar,
is
not
an
activity
in
the
course
of
anyone's
duties.
Three
courts
have
found
the
appellant
guilty,
making
it
obvious
that
he
knew
his
acts
were
false
and
deceptive.
Further,
the
legal
expenses
incurred
in
defending
the
practice
of
non-disclosure
would
not
be
deductible
because
of
its
illegality
in
a
criminal
sense.
(2)
As
to
subsection
60(0),
the
information
laid
under
section
239
was
not
an
assessment
of
tax,
interest
or
penalties
under
the
Act.
The
purpose
of
laying
charges
under
section
239
related
to
tax
evasion
in
its
criminal
sense,
and
the
fines
or
penalties
and
any
imprisonment
imposed
or
levied
thereunder
would
be
solely
criminal
or
penal
in
nature.
The
Minister
of
National
Revenue
is
without
any
power
to
assess
a
penalty
or
fine
under
section
239.
Also,
an
appeal
from
a
section
239
conviction
is
not
the
same
as
an
appeal
from
an
assessment
of
tax,
interest
or
penalties
notwithstanding
that
much
of
the
underlying
legal
preparation
may
require
some
duplication.
The
Law
The
relevant
provisions
of
the
Income
Tax
Act
follow.
The
fiscal
ability
to
deduct
legal
fees
in
the
calculation
of
income
from
a
business
is
found
in
subdivision
b
of
Part
I,
Division
B-Computation
of
Income
thusly:
9.
(1)
Income
from
business
or
property.
—Subject
to
this
Part,
a
taxpayer's
income
for
a
taxation
year
from
a
business
or
property
is
his
profit
therefrom
for
the
year.
Deductions
18.
(1)
General
limitations.—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;
.
.
.
Also
found
thereunder
is
subdivision
e-Deductions
in
Computing
Income,
which
is
of
general
application:
60.
Other
deductions.-There
may
be
deducted
in
computing
a
taxpayer's
income
for
a
taxation
year
such
of
the
following
amounts
as
are
applicable:
(o)
expense
of
objection
or
appeal.-amounts
paid
by
the
taxpayer
in
the
year
in
respect
of
fees
or
expenses
incurred
in
preparing,
instituting
or
prosecuting
an
objection
to,
or
an
appeal
in
relation
to,
(i)
an
assessment
of
tax,
interest
or
penalties
under
this
Act
or
an
Act
of
a
province
that
imposes
a
tax
similar
to
the
tax
imposed
under
this
Act,
.
.
.
[Emphasis
added.]
Under
Division
l-Returns,
Assessments,
Payment
and
Appeals
of
Part
I,
the
following
provisions
are
material:
Assessment
152.
(1)
Assessment.—The
Minister
shall,
with
all
due
dispatch,
examine
a
taxpayer's
return
of
income
for
a
taxation
year,
assess
the
tax
for
the
year,
the
interest
and
penalties,
if
any,
payable
and
determine
(a)
the
amount
of
refund,
if
any
.
.
.
or
(b)
the
amount
of
tax,
if
any,
deemed
.
.
.
to
have
been
paid
on
account
of
his
tax
under
this
Part
for
the
year.
(1.2)
Provisions
applicable.—The
provisions
of
paragraphs
.
.
.
60(0),
this
Division
and
Division
J,
as
they
relate
to
an
assessment
or
a
reassessment
and
to
assessing
and
reassessing
tax,
are
applicable,
with
such
modifications
as
the
circumstances
require,
to
a
determination
or
redetermination
and
to
determining
and
redetermining
amounts
under
this
Division,
(4)
Idem.—The
Minister
may
at
any
time
assess
tax,
interest
or
penalties
under
this
Part
or
notify
in
writing
any
person
by
whom
a
return
of
income
for
a
taxation
year
has
been
filed
that
no
tax
is
payable
for
the
taxation
year,
and
may
.
.
.
reassess
or
make
additional
assessments,
or
assess
tax,
interest
or
penalties
under
this
Part,
as
the
circumstances
require,
(8)
Idem.—An
assessment
shall,
subject
to
being
varied
or
vacated
on
an
objection
or
appeal
under
this
Part
and
subject
to
a
reassessment,
be
deemed
to
be
valid
and
binding
notwithstanding
any
error,
defect
or
omission
therein
or
in
any
proceeding
under
this
Act
relating
thereto.
[Emphasis
added.]
Objections
to
Assessments
165.
(1)
Objections
to
assessment.—A
taxpayer
who
objects
to
an
assessment
under
this
Part
may,
within
90
days
from
the
day
of
mailing
of
the
notice
of
assessment,
serve
on
the
Minister
a
notice
of
objection
in
duplicate
in
prescribed
form
setting
out
the
reasons
for
the
objection
and
all
relevant
facts.
[Emphasis
added.]
(3)
Duties
of
Minister.
—Upon
receipt
of
a
notice
of
objection
under
this
section,
the
Minister
shall,
(a)
with
all
due
dispatch
reconsider
the
assessment
and
vacate,
confirm
or
vary
the
assessment
or
reassess
.
.
.
Under
Division
J-Appeals
to
the
Tax
Court
of
Canada
and
the
Federal
Court
also
under
Part
/:
169.
Appeal.—Where
a
taxpayer
has
served
notice
of
objection
to
an
assessment
under
section
165,
he
may
appeal
to
the
Tax
Court
of
Canada
to
have
the
assessment
vacated
or
varied
after
either
(a)
the
Minister
has
confirmed
the
assessment
or
reassessed,
or
(b)
90
days
have
elapsed
after
service
of
the
notice
of
objection
and
the
Minister
has
not
notified
the
taxpayer
that
he
has
vacated
or
confirmed
the
assessment
or
reassessed;
but
no
appeal
under
this
section
may
be
instituted
after
the
expiration
of
90
days
from
the
day
notice
has
been
mailed
to
the
taxpayer
under
section
165
that
the
Minister
has
confirmed
the
assessment
or
reassessed.
171.
(1)
Disposal
of
appeal.—The
Tax
Court
of
Canada
may
dispose
of
an
appeal
by
(a)
dismissing
it;
or
(b)
allowing
it
and
(i)
vacating
the
assessment,
(ii)
varying
the
assessment,
or
(iii)
referring
the
assessment
back
to
the
Minister
for
reconsideration
and
reassessment.
172.
(2)
Appeal
to
Federal
Court
of
Canada.—Where
a
taxpayer
has
served
a
notice
of
objection
to
an
assessment
under
section
165,
he
may,
in
place
of
appealing
to
the
Tax
Court
of
Canada
under
section
169,
appeal
to
the
Federal
Court
of
Canada
at
a
time
when,
under
section
169,
he
could
have
appealed
to
the
Tax
Court
of
Canada.
Finally,
under
Part
XV-Administration
and
Enforcement:
239.
(1)
Offences.
—Every
person
who
has
(a)
made,
or
participated
in,
assented
to
or
acquiesced
in
the
making
of,
false
or
deceptive
statements
in
a
return,
certificate,
statement
or
answer
filed
or
made
as
required
by
or
under
this
Act
or
a
regulation,
(b)
to
evade
payment
of
a
tax
imposed
by
this
Act,
destroyed,
altered,
mutilated,
secreted
or
otherwise
disposed
of
the
records
or
books
of
account
of
a
taxpayer,
(c)
made,
or
assented
to
or
acquiesced
in
the
making
of,
false
or
deceptive
entries,
or
omitted,
or
assented
to
or
acquiesced
in
the
omission,
to
enter
a
material
particular,
in
records
or
books
of
account
of
a
taxpayer,
(d)
wilfully,
in
any
manner,
evaded
or
attempted
to
evade,
compliance
with
this
Act
or
payment
of
taxes
imposed
by
this
Act,
or
(e)
conspired
with
any
person
to
commit
an
offence
described
by
paragraphs
(a)
to
(d),
is
guilty
of
an
offence
and,
in
addition
to
any
penalty
otherwise
provided,
is
liable
on
summary
conviction
to
(f)
a
fine
of
not
less
than
25%
and
not
more
than
double
the
amount
of
the
tax
that
was
sought
to
be
evaded,
or
(g)
both
the
fine
described
in
paragraph
(f)
and
imprisonment
for
a
term
not
exceeding
2
years.
(2)
Idem.
—Every
person
who
is
charged
with
an
offence
described
by
subsection
(1)
may,
at
the
election
of
the
Attorney
General,
be
prosecuted
upon
indictment
and,
if
convicted,
is,
in
addition
to
any
penalty
otherwise
provided,
liable
to
imprisonment
for
a
term
not
exceeding
5
years
and
not
less
than
2
months.
(3)
Penalty
upon
conviction.—Where
a
person
has
been
convicted
under
this
section
of
wilfully,
in
any
manner,
evading
or
attempting
to
evade
payment
of
taxes
imposed
by
Part
I,
he
is
not
liable
to
pay
a
penalty
imposed
under
section
163
for
the
same
evasion
or
attempt
unless
he
was
assessed
for
that
penalty
before
the
information
or
complaint
giving
rise
to
the
conviction
was
laid
or
made.
(4)
Stay
of
appeal.—Where,
in
any
appeal
under
this
Act,
substantially
the
same
facts
are
at
issue
as
those
that
are
at
issue
in
a
prosecution
under
this
section,
the
Minister
may
file
a
stay
of
proceedings
with
the
Tax
Court
of
Canada
or
the
Federal
Court,
as
the
case
may
be,
and
thereupon
the
proceedings
before
the
Tax
Court
of
Canada
or
Federal
Court
are
stayed
pending
final
determination
of
the
outcome
of
the
prosecution.
Procedure
and
Evidence
244.
(1)
Information
or
complaint.—An
information
or
complaint
under
this
Act
may
be
laid
or
made
by
any
officer
of
the
Department
of
National
Revenue,
by
a
member
of
the
Royal
Canadian
Mounted
Police
or
by
any
person
thereunto
authorized
by
the
Minister
and,
where
an
information
or
complaint
purports
to
have
been
laid
or
made
under
this
Act,
it
shall
be
deemed
to
have
been
laid
or
made
by
a
person
thereunto
authorized
by
the
Minister
and
shall
not
be
called
in
question
for
lack
of
authority
of
the
informant
or
complainant
except
by
the
Minister
or
by
some
person
acting
for
him
or
Her
Majesty.
(4)
Limitation
of
prosecutions.—An
information
or
complaint
under
the
provisions
of
the
Criminal
Code
relating
to
summary
convictions,
in
respect
of
an
offence
under
this
Act,
may
be
laid
or
made
on
or
before
a
day
5
years
from
the
time
when
the
matter
of
the
information
or
complaint
arose
or
within
one
year
from
the
day
on
which
evidence,
sufficient
in
the
opinion
of
the
Minister
to
justify
a
prosecution
for
the
offence,
came
to
his
knowledge,
and
the
Minister's
certificate
as
to
the
day
on
which
such
evidence
came
to
his
knowledge
is
conclusive
evidence
thereof.
Analysis
I
propose
to
deal
firstly
with
the
appellant's
second
ground
of
appeal
involving
subsection
60(o)
of
the
Act.
When
one
walks
through
the
abovenoted
provisions
it
becomes
obvious
that
the
activities
involving
an
assessment
of
tax,
interest
and
penalties
by
the
respondent,
and
objections
and
appeals
taken
therefrom
by
a
taxpayer,
are
all
done
under
Part
I.
They
are,
prima
facie,
quite
separate
and
distinct
from
those
activities
emanating
under
Part
XV.
Notwithstanding
the
innovative
reasons
advanced
by
appellant’s
counsel,
the
fact
remains
that
the
subject
legal
fees
were
incurred
by
the
appellant
in
respect
of
defending
himself
under
the
Part
XV
section
239
criminal
tax
evasion
charges
laid
by
information
or
complaint
which
charges,
and
I
agree
here
with
counsel
for
the
respondent,
are
not
envisaged
in
the
subsection
60(0)
phraseology
of
assessments
of
tax,
interest
or
penalties
made
under
the
Act.
That
there
may
be
significant
duplication
of
legal
work
required
in
defending
the
Part
XV
criminal
charges
in
respect
of
the
assessments
and
in
objecting
to
or
appealing
the
Part
I
assessments
themselves
does
not
merge
the
two
otherwise
distinctive
functions
into
one.
While
the
section
239
charges
or
allegations
may
have
been
made
“in
relation
to"
such
assessments
in
their
broadest
sense,
the
appellant's
legal
defence
preparations
are
not
those
activities
contemplated
in
Divisions
I
and
J
found
in
Part
I
of
the
Act
respecting
objections
or
appeals
from
assessments
of
tax,
interest
and
penalties.
In
the
same
vein,
legal
fees
would
not
be
deductible
under
subsection
60(0)
in
respect
of
any
appeals
arising
from
the
levying,
imposition
or
"assessment"
of
the
section
239
penalties
or
fines
because
that
matter
remains
at
all
times
separate
and
distinct
from
that
of
assessments
of
tax,
interest
or
penalties
made
by
the
respondent
under
the
Act.
Accordingly
the
second
branch
of
the
appellant's
argument
must
fail.
As
to
the
first
ground
of
appeal,
my
reading
of
the
relevant
jurisprudence
is
that
the
incurrence
of
legal
fees
must
have
been
commercially
necessitated
or
driven
in
that
their
purpose
must
have
some
measurable
nexus
to
some
kind
of
working
or
business-related
expense:
viz
M.N.R.
v.
The
Kellogg
Company
of
Canada,
Limited,
[1943]
C.T.C.
1;
2
D.T.C.
601
(S.C.C.)
and
M.N.R.
v.
L.D.
Caulk
Company
of
Canada
et
al.,
[1954]
C.T.C.
28;
54
D.T.C.
1011
(S.C.C.),
or
to
protect
or
enhance
an
income
stream:
viz
Rolland
Paper
Company
Limited
v.
M.N.R.,
[1960]
C.T.C.
158;
60
D.T.C.
1095
(Ex.
Ct.)
and
Premium
Iron
Ores
Limited
v.
M.N.R.,
[1966]
C.T.C.
391;
66
D.T.C.
5280
(S.C.C.).
It
was
succinctly
put
by
Fournier,
J.
in
the
Rolland
Paper
case
at
page
168
(D.T.C.
1100):
The
agreement
or
arrangements
made
or
arrived
at
were
to
regulate
their
day
to
day
practices
in
the
conduct
of
their
business
activities.
Their
scheme
was
one
to
govern
their
operations
from
which
they
derived
their
income.
The
legal
expenses
were
paid
to
defend
their
way
of
doing
business
and
preserve
the
system
under
which
they
operated.
Following
his
review
of
the
earlier
jurisprudence
respecting
any
impact
that
guilt
or
innocence
may
have
on
deductibility
of
legal
fees,
Fournier,
J.
at
page
171
(D.T.C.
1102)
came
to
the
conclusion:
Believing
as
I
do
that
the
appellant’s
trade
practices
in
the
operations
of
its
business
were
used
and
followed
for
the
purpose
of
earning
income
from
the
business,
I
find
that
lawful
legal
fees
and
costs
incurred
or
made
in
defending
such
practices
till
a
final
decision
on
their
legality
or
illegality
was
reached
were
made
for
the
purposes
of
their
trade
and
for
the
purpose
of
earning
income
and
were
deductible
in
ascertaining
the
appellant’s
taxable
income
within
the
meaning
of
section
12(1)(a)
of
the
Income
Tax
Act,
R.S.C.
1952.
[now
18(1)(a)
I
From
this
it
seems
that
legality
or
illegality
would
not
have
any
significant
impact
in
the
determination
of
the
deductibility
of
legal
expenses
laid
out
provided
it
was
for
the
purposes
of
the
appellant's
trade
and
to
defend
his
way
of
doing
business
and
for
the
purpose
of
earning
income.
I
would
concur
with
the
respondent's
counsel's
submission
that
the
Ben
Matthews
&
Associates
case,
supra,
is
distinguishable
on
its
facts
in
that
the
section
239
charges
alleging
criminal
wilful
evasion
of
the
payment
of
taxes
by
way
of
the
making
of
false
and
deceptive
statements
in
its
financial
statements
arose
out
of
and
were
in
respect
to
reductions
of
inventory
valuations
concerning
damaged,
stained
and
obsolete
goods,
all
of
which
had
been
openly
and
properly
recorded
in
the
proper
and
adequate
records
of
the
Company.
Rip,
T.C.J.
of
this
Court
found
that
the
legal
expenses
incurred
to
defend
the
prosecution
arose
directly
from
that
taxpayer's
practice
of
preparing
financial
statements
in
the
normal
course
of
its
business
and
the
defence
of
that
practice.
In
the
case
at
bar,
the
appellant
had
been
charged
and
convicted
of
wilfully
failing
to
report
substantial
amounts
of
income
which,
in
the
context
of
this
case,
cannot
be
described
as
a
normal
business
activity
carried
out
in
the
course
of
business
operations
or
which
had
been
carried
out
for
the
purpose
of
gaining
or
producing
income.
The
facts
here
simply
do
not
support
counsel
for
the
appellant’s
submission
that
the
legal
expenses
arose
and
occurred
directly
in
defending
the
appellant’s
practice
of
paying
assistants
and
employees
in
the
course
of
his
business
and
in
computing
the
income
from
that
business.
Rather,
and
as
noted
earlier
by
counsel
for
the
respondent,
the
false
statements
wilfully
made
concerned
non-reporting
of
over
50
per
cent
of
the
appellant's
business
income
for
each
of
the
subject
years.
This
activity,
on
these
particular
facts,
lacks
commerciality
and
simply
does
not
fit
within
the
jurisprudential
phraseology
of
incurring
legal
expenses
to
defend
a
way
of
doing
business
or
to
preserve
a
system
under
which
a
business
operates.
Conclusion
The
appeals
are
to
be
allowed
in
part,
without
costs,
only
to
the
extent
of
and
to
give
effect
to
the
respondent's
concession
as
set
out
in
paragraph
15
of
the
agreed
statement
of
facts.
In
that
respect
only
is
the
matter
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
the
basis
that
the
appellant
is
entitled
to
deduct,
pursuant
to
subsection
60(0)
of
the
Act,
the
amount
of
$500
for
the
1983
taxation
year
and
$1,825
for
the
1984
taxation
year.
Appeals
allowed
in
part.
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