Couture,
C.J.T.C.
[Translation]:—The
appellant
is
appealing
an
assessment
issued
by
the
respondent
on
September
19,
1985
for
the
1982
taxation
year
under
which
the
respondent
disallowed
a
deduction
of
$10,636
in
the
computation
of
her
income.
She
submits
that
this
amount
was
incurred
for
the
purpose
of
gaining
income
within
the
meaning
of
paragraph
18(1)(a)
of
the
Income
Tax
Act
(the
Act)
in
the
circumstances
she
described
in
her
testimony.
She
had
been
married
to
Dominique
Russo
(Russo)
since
1937
and
from
1967
to
1972
they
were
separated.
The
marriage
was
than
dissolved
by
divorce.
During
the
1940s
and
subsequent
years,
the
couple
went
into
the
real
estate
business,
constructing
buildings
for
investment
or
sale.
She
alleges
that
in
1955
they
incorporated
a
company
by
the
name
of
Rideau
Construction
Ltée
(Rideau),
in
which
each
of
them
owned
50
per
cent
of
the
issues
shares.
This
company
operated
successfully
until
1972,
when
its
letters
patent
were
revoked.
She
also
alleges
that
she
was
the
owner
of
a
building
located
at
444
Ogilvy
in
Montreal,
which
contained
23
apartments
and
from
which
she
collected
revenues.
As
a
result
of
the
couple's
domestic
situation,
Russo
sued
the
appellant
in
1971
for
$91,000,
the
cost
of
the
land
and
the
construction
of
the
building
in
question,
and
had
a
writ
issued
for
seizure
before
judgment
in
order
to
intercept
the
rental
payments
from
the
building.
In
1975
the
appellant
sued
Russo
claiming
ownership
of
50
per
cent
of
the
shares
in
Rideau,
since
he
claimed
he
was
the
beneficial
owner
of
the
shares
and
that
his
wife
was
listed
on
the
company's
records
only
as
a
dummy
for
him.
Finally,
a
second
action
was
commenced
by
the
appellant
against
Russo
for
$181,409.12,
which
represented
50
per
cent
of
the
amount
she
alleged
he
had
appropriated
from
the
company.
The
appellant
was
represented
by
the
same
counsel
in
all
three
actions,
in
which
three
judgments
were
rendered
on
October
2,
1980
in
favour
of
the
appellant.
In
the
action
against
Russo,
the
court
granted
a
release
of
the
seizure
following
its
ruling
that
the
building
belonged
to
the
appellant
and
dismissing
Russo's
claim.
In
a
second
judgment
the
court
declared
that
the
appellant
was
entitled
to
half
of
the
net
assets
of
the
company
and
ordered
that
a
sequestrator
be
appointed
to
administer
and
proceed
with
the
division
of
the
assets.
In
the
third
judgment
the
court
ordered
the
defendant
Russo
to
pay
the
appellant
$129,411.74,
which
was
half
the
assets
deemed
to
have
been
appropriated
by
Russo
from
the
company.
For
all
of
the
services
relating
to
the
aforementioned
judicial
proceedings,
her
solicitor
submitted
an
account
for
fees
of
$10,636
covering
his
services
to
the
date
of
billing.
In
her
tax
return
for
the
1982
taxation
year,
the
appellant
deducted
the
amount
of
$13,171
from
her
rental
income.
In
accordance
with
the
September
19,
1985
assessment,
the
respondent
refused
to
allow
$10,636
of
the
$13,171
that
was
claimed
on
the
ground
that
this
sum
had
not
been
incurred
for
the
purpose
of
gaining
income
in
accordance
with
the
requirements
of
paragraph
18(1)(a)
of
the
Act,
but
was
instead
an
expense
of
a
personal
nature.
The
appellant
argues
that
this
amount
was
deductible
under
the
provisions
of
paragraph
18(1)(a),
which
states:
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.
The
three
judgments
of
the
Quebec
Superior
Court
in
favour
of
the
appellant
seem
to
indicate
clearly
that
the
appellant's
claims
are
invalid
in
view
of
the
requirements
of
paragraph
18(1)(a).
In
the
action
commenced
by
Russo
in
1971,
the
court
had
to
determine
who
was
the
owner
of
the
building
at
444
Ogilvy.
Bernard
Flynn,
J.
concluded
that
the
building
was
the
property
of
the
appellant
and
in
his
judgment
he
said:
[Translation]
When
looked
at
in
the
context
of
a
partnership
between
the
spouses,
the
Court
can
conclude
that
the
defendant
Russo
(the
appellant)
is
the
owner
of
the
building
in
question.
.
.
.
To
some
degree
it
represented
her
particular
share
of
the
property
that
the
business
was
rapidly
accumulating.
The
effect
of
this
judgment
was
to
uphold
the
appellant's
right
of
ownership
to
the
building,
and,
as
such,
to
protect
a
source
of
income.
This
source
of
income
represented
a
capital
asset
for
her,
and
not
a
gain
in
income.
The
order
of
release
simply
disposed
of
a
procedure
ancillary
to
the
main
action.
The
second
action
commenced
by
the
appellant
against
Russo
involved
only
the
division
of
the
net
assets
of
the
company,
which
had
operated
and
existed
until
1972,
and
thus,
in
this
case
as
well,
a
claim
by
the
appellant
to
a
share
in
a
capital
property.
As
to
the
third
action
commenced
in
1975,
it
likewise
involved
recovering
her
share
of
the
assets
deemed
to
have
been
appropriated
by
Russo
from
the
Rideau
properties.
Again,
the
appellant
was
claiming
ownership
in
a
capital
property.
It
seems
evident,
therefore,
from
the
situation
as
described,
that
the
fees
paid
to
her
counsel
were
not
incurred
by
the
appellant
for
the
purpose
of
gaining
income
from
property
but
rather
for
recovering
assets
that
she
claimed
belonged
to
her.
For
these
reasons
the
appeal
is
dismissed.
Appeal
dismissed.
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