Thomas Sammut v. Minister of National Revenue, [1982] CTC 2072, 82 DTC 1091

John B Goetz:—This is an appeal by the appellant with respect of his 1975, 1976 and 1977 taxation years. It was agreed at the outset of the hearing by counsel for the respondent that the only relevant years, as far as the appeal was concerned, were 1976 and 1977 and the parties agreed that the appellant, in the 1976 taxation year, had deducted as legal expenses against rental income the sum of $4,380.52. Likewise, in his 1977 taxation year he claimed legal expenses in the amount of $6,718.01 as a deduction against rental income.

Issue

Were the legal expenses incurred by the appellant in the 1976 and 1977 taxation years deductible against income or were they incurred on account of capital?

Facts

On May 20, 1971, the appellant was the registered owner of a residential property in Calgary, Alberta. On March 31, 1972, he entered into a lease option purchase agreement which was exercisable on or before April 1, 1973, by Allan Joseph Pageot and Sandra Pageot. This option was exercised on April 1, 1973, but a dispute arose as to the manner in which it was exercised. Quite clearly, the appellant was greatly distressed at the arrears of payments on account of rent at the time of exercising the option in 1973.

The appellant filed a very full notice of appeal to which were attached a number of documents including two orders which he says are unlawful. The first was that of A D Bessemer, QC, Master In Chambers, dated October 23, 1973, ordering the respondents (Allan J Pageot and Sandra Pageot) to pay for use and occupancy pending the result of litigation relating to the determination of the issues as to whether the option was properly exercised. On October 4, 1977, Mr Justice D H Bowen made a vesting order of the property in question in favour of the optionees (the Pageots) and directed that a new title issue in the name of Mr and Mrs Pageot, extinguishing all rights of the appellant. The appellant was given leave to apply to the Supreme Court of Canada to appeal these decisions and such leave was refused by the Supreme Court of Canada. The Pageots had to commence an action for a specific performance that the exercise of their option on the property be honoured by the appellant. The appellant fought this vigorously because he claimed they owed him money as rent. The appellant appealed the order of Mr Justice Bowen to the Alberta Court of Appeal which upheld Mr Justice Bowen’s decision and that is what prompted an attempt to obtain leave to appeal to the Supreme Court of Canada which was refused on October 18, 1976 and the matter was finally determined.

I can only comment that the appellant felt that the Pageots owed him money and sought to stay, in any way he could, the orders of Master Bessemer and of Mr Justice Bowen pending the outcome of his appeals.

The respondent filed three Exhibits showing lawyers’ billings and these were his billings for 1976 and 1977 and the items listed in these billings relate to the appellant’s effort to reassert his right to title and to turn over the vesting orders.

The whole unfortunate legal process began when the Pageots attempted to exercise the option and continues to this day in that the appellant has admitted he has two actions involving the Pageots and relating to the subject property which are extant. Unfortunately, the appellant fails to understand the operation of the due process in law and it is not within my jurisdiction to in any way interfere with orders made by the Master and the various levels of court where the appellant sought relief to the effect that title would be returned to him.

It is clear to me that all of the legal expenses during the years 1976 and 1977 were incurred to preserve an existing capital asset and were therefore payments on account of capital. The legal expenses were incurred to attempt to preserve his title. See British Columbia Power Corporation Limited v MNR, [1967] CTC 406; 67 DTC 5258, a decision of the Supreme Court of Canada; see also Farmers Mutual Petroleums Ltd v MNR, [1967] CTC 396; 67 DTC 5277, and Leslie Reitman and Clara Reitman v MNR, [1969] Tax ABC 988; 69 DTC 695.

For the above reasons, the appeal is dismissed.

Appeal dismissed.