Income-Producing Purpose


Canadian Imperial Bank of Commerce v. Canada, 2013 DTC 5098 [at 6020], 2013 FCA 122

"egregious" exception refers to factual disconnection

The taxpayer paid approximately $3 billion in settlements relating to claims that it or its subsidiaries were jointly and severally liable with Enron and other defendants for working with Enron while aware that Enron was publishing misleading financial reports. The Minister denied the deduction of the settlement payments on the basis inter alia that they were not expenses incurred to produce income; and pleaded that the taxpayer's conduct was "so egregious and repulsive" that the settlement payment could not be justified as being incurred for such purpose.

The Court granted the taxpayer's motion to strike the statement from the pleadings. Paragraph 18(1)(a) does not invite the Court to weigh the morality of the taxpayer's conduct. After referring to Iacobucci J's obiter dictum in 65302 regarding "egregious or repulsive" conduct, Sharlow JA stated (at paras. 65-66):

I do not accept that Justice Iacobucci, having rejected the notion that the Courts may superimpose on paragraph 18(1)(a) a non-legislated public policy test, would accept in the very same case the proposition that the Courts nevertheless may superimpose on paragraph 18(1)(a) a non-legislated requirement that the taxpayer's conduct not be "egregious or repulsive."

...Essentially, he was recognizing that certain conduct may, because of its egregious or repulsive nature, be so disconnected factually from the taxpayer's actual business (or any business) that an expense the taxpayer incurs because of that conduct cannot meet the income earning purpose test.

Lyncorp International Ltd. v. Canada, 2012 DTC 5032 [at 6684], 2011 FCA 352, aff'g 2010 DTC 1351 [at 4335], 2010 TCC 532

The taxpayer, owned and operated by Mr. Mullen, invested in shares and made non-interest bearing loans to a number of corporate ventures to which Mr. Mullen provided management services free of charge by him or the taxpayer. The significant expenses of a private jet which were incurred primarily in connection with Mr. Mullen making visits to the offices of these ventures were deducted in computing the taxpayer's income. The Minister denied these deductions.

Miller J. allowed only the expenses related to a business carried on directly by the taxpayer. In respect of its investments described above, he concluded that the related flight expenses were not incurred for the purpose of earning income from either a business or property. He noted (at para. 75):

The [taxpayer] was, in effect, giving its business ventures several hundred thousand dollars, neither by way of debt or equity but simply by providing free services towards the operation of the business ventures' businesses... . This generosity was neither a loan nor an equity investment by the [taxpayer]. It might best be described as an agreement to pay someone else's expenses. Equity investments yield dividend income. Debt investments yield interest income. Free services, with no obligation to repay, yield only hope. This is not a deductible expense.

Miller J. also noted that, because the debts were interest-free, they could not have an income-producing purpose even though they were issued in anticipation of subsequent dividend income from the business ventures. "The dividend income does not arise from the debt. Put in tax terms, the debt is not the source of dividend income" (para. 67).

The Court of Appeal affirmed the reasoning given at the Tax Court (and in particular adopted para. 75) and rejected the further submission that, under the ultimate purpose test in Byram, the taxpayer could deduct an expense under s. 18(1)(a) provided that it were incurred to increase the profitability of the corporations for the purpose of receiving dividend income. Evans J.A. stated (at para. 14):

Byram is relevant in that it recognizes that the connection between an expense incurred by a taxpayer and anticipated dividend income cannot be tenuous or remote.

Teck Corp. v. The Queen, 2005 DTC 5338, 2004 BCCA 514

income taxes v. royalties

Mining taxes paid by the taxpayer to the provinces of Ontario, Quebec and Newfoundland and Labrador were income taxes the deduction of which was prohibited by s. 18(1)(a) rather than taxes in the nature of royalties the deduction of which was prohibited by s. 18(1)(m) of the Act. (The latter characterization would have resulted in the deductibility of such taxes by virtue of s. 8(1) of the Income Tax Act (BC)).

Words and Phrases
income tax

McNeill v. The Queen, 2000 DTC 6211 (FCA)

damages from contractual breach were deductible

Some years after the taxpayer sold his chartered accountancy practice to another firm, he was ordered to pay damages and costs of $465,908 in respect of the breach of his covenants in the sale agreement to provide consultancy services and not to compete with the purchaser as well as for breach of an independent fiduciary duty to the purchaser.

After noting that the Tax Court had found that the taxpayer's objective in breaching these covenants was to keep his clients and his business, Rothstein J.A. found that the analysis in 65302 British Columbia Ltd. respecting the deductibility of fines and penalties also applied to a court award of damages. As the Court was not satisfied that the taxpayer's conduct was so egregious or repulsive that the damages subsequently awarded were not justified as being incurred for the purpose of producing income, the damages were deductible.

65302 British Columbia Ltd. v. Canada, 99 DTC 5799, [1999] 3 S.C.R. 804

fines for conduct engaged in for an income-producing purpose

The taxpayer, which was a registered egg producer, deliberately produced over quota in order to maintain its major customer, (who was expanding), until it could purchase additional quotas. The over-production was discovered by the British Columbia Egg Marketing Board and the taxpayer deducted a resulting over-quota levy paid by it to the Board together with related interest and legal expenses.

In finding that all such amounts were fully deductible, Iacobucci J. indicated that he declined to follow Imperial Oil, 3 DTC 1090 (whose requirement that expenses need be incidental, in the sense that they were unavoidable, was based on the more restrictive statutory ancestor of s. 18(1)(a)), that making the deductibility of fines depend upon considerations of public policy would "place a high burden on the taxpayer who is to engage in this analysis in filling out his or her income tax return and would appear to undermine the objective of self-assessment underlying our tax system" (p. 5811), and that, in any event, that denying deductibility might undercut one of the underlying premises of our tax system which "is that the state taxes only net, rather than gross, income because it is net income that measures a taxpayer's ability to pay". He concluded that fines and penalties that are incurred for the purpose of producing income (as was the case here) should be deductible.

He added (at p. 5813):

It is conceivable that a breach could be so egregious or repulsive that the fine subsequently imposed could not be justified as being incurred for the purpose of producing income.

Taylor v. The Queen, 97 DTC 5120 (FCA)

restitution gave rise to deduction

In a situation where the taxpayer had misappropriated funds from 1986 to 1989, then effected restitution in 1990, Linden J.A. stated that "the carryback and carryforward provisions are still open to the appellant if the proper forms are filed".

Amway of Canada. Ltd. v. The Queen, 96 DTC 6135, [1996] 2 CTC 162 (FCA)

Strayer J.A. found that all amounts paid by the taxpayer to Revenue Canada in settlement of an enforcement action brought against it pursuant to s. 192(1) of the Customs Act represented a penalty notwithstanding that a portion of the amounts paid by it were equal to the customs duties and excise tax that would have been payable by the goods in question had it properly reported their dutiable value. "Strayer J.A. went on to find (at p. 6141) that such penalties were non-deductible because it could not have been concluded that the taxpayer's "deliberate and fraudulent scheme to avoid payment of higher duties and taxes to the revenue of Canada was an unavoidable incident in the operation of Amway's business of importing goods and selling them in Canada".

Tonn v. The Queen, 96 DTC 6001, [1996] 1 CTC 205, [1996] 1 CTC 339 (FCA)

expenses must be incurred within business framework

Before going on to find that rental losses incurred by the taxpayers were fully deductible by them, Linden J.A. stated (at p. 6005) that s. 18(1)(a) required that an:

expense must have been incurred within a business framework, bearing some relation to the income earning process ... . [S]uch intention, strictly speaking, is subjective; no requirement of objective reasonability is expressly imposed by the section.

Poetker v. MNR, 95 DTC 5614, [1996] 1 CTC 202 (FCA)

Before affirming the finding of the Tax Court judge that the taxpayer was not able to deduct persistent losses from two condominium units that the taxpayer had acquired with a view to earning rental income but which the Tax Court judge had found had not been acquired with a reasonable expectation of profit, Stone J.A. noted that the decision in Landry (94 DTC 6624) could not be distinguished from the present case, and noted that "we do not read the majority decision as founded upon the presence of some personal benefit element in the taxpayer's business activity".

Symes v. Canada, 94 DTC 6001, [1993] 4 S.C.R. 695, [1994] 1 CTC 40

Before indicating that it was unnecessary to determine whether there should be a change in the traditional position that child care expenses (in this case, the expenses of a nanny paid by a mother who practised law full-time as a partner in a Toronto firm) were non-deductible, Iacobucci J. noted that the character of child care expenses was unique. Favouring their deductibility was the significant percentage of a taxpayer's income they represented, their general linkage to the taxpayer's ability to gain or produce income, and policy considerations (the expenditures are incurred as part of the development of another human life). On the other hand, such expenditures are also made in order to make a taxpayer available to the business.

The Queen v. Shefner Estate, 93 DTC 5482, [1993] 2 CTC 273 (FCTD)

The expropriation committee of the City of Anjou threatened to pursue criminal and civil action against the taxpayer and a corporation owned by him ("Alderton") in connection with the excessive amount of expropriation proceeds received by a corporation 1/3 of whose shares were owned by the taxpayer and Alderton. A payment made by the taxpayer in settlement of this claim was fully deductible from his income based on a finding that his potential liability was incurred as part of his real estate business and given that settling with the City avoided possible damage to his business reputation.

Parkland Operations Limited v. Her Majesty the Queen, 90 DTC 6676, [1991] 1 CTC 23 (FCTD)

A loss of $563,396 which the taxpayer suffered from defalcations made by minority shareholders was found to have resulted from wrongful draw-downs from the taxpayer's operating lines of credit in the course of the taxpayer's trading operations, and therefore was realized by it on income account. The minority shareholders "misappropriated the money while dealing with it in the course of the company's activities, and not by exercising some overrriding control over the funds which existed outside of those activities" (p. 6680).

Graves v. The Queen, 90 DTC 6300 (FCTD)

The taxpayers were entitled to deduct a portion of their house expenses based on the square footage of 1/2 of their basement relative to their house square footage, on the ground that they used that portion of the basement: (a) as a reception area for Amway distributors to wait and collect Amway products each week following delivery to the taxpayers (who were direct distributors), (b) for the storage of Amway products and (c) for filing cabinets. However, the taxpayers' claim that they were entitled to deductions in respect of 1/2 of the space of their two-car garage, on the basis that one of the two cars was primarily used in the Amway business, was found to be without merit in light of the fact that the taxpayers had owned two cars and built the two-car garage prior to becoming involved in their Amway business.

In addition, the taxpayers, in appealing a finding of the Tax Court judge that only 75% of the expenses attributable to one of the automobiles were deductible as a business expense, were found to have failed to have established that 90% of the total mileage was for business use. MacKay J. stated (with reference to the travel log which the taxpayers had prepared, which contained only estimates of the miles that have been travelled on business use) stated that "a taxpayer cannot simply estimate businesses travelled in the hope that this will suffice as an adequate accounting of mileage actually completed in the course of business for which expenses are claimed as a business expense."

Conventions of Amway distributors that the taxpayers attended in the United States for the purpose of developing their leadership abilities and for the purposes of developing motivation, enthusiasm and vision were found to have been incurred for an income-producing purpose.

Friedland v. The Queen, 89 DTC 5341, [1989] 2 CTC 79 (FCTD)

The taxpayer was able to deduct the payment by it of expenses incurred by its individual shareholder in connection with driving his BMW and Rolls downtown and to York University.

La Compagnie Idéal Body Inc. v. The Queen, 89 DTC 5344, [1989] 2 CTC 187 (FCTD)

A private corporation which prior to the death of its principal shareholder had regularly declared and paid bonuses to him of under $100,000 was permitted to deduct only $100,000 of a $210,000 bonus which it declared to his widow in light of the fact that she relied heavily on other company personnel and worked for the corporation about five hours per week. The cancellation of the bonus as the 1982 recession deepened did not affect its (partial) deductibility for 1981.

Moloney v. The Queen, 89 DTC 5062, [1989] 1 CTC 162 (FCTD), aff'd 92 DTC 6570 (FCA)

The taxpayer and other individuals each paid $20,000 to an off-shore corporation ("Applied Research") purportedly as a pre-paid royalty for a licence to market (through a designated agent) a speed-reading course in a designated area of the U.S.A., and $100 for the licence itself. Generally, the expenditure was paid through a "performance bond" (i.e., a cheque payable to the taxpayer and Applied Research) received from a corporation not dealing at arm's length with Applied Research, and a promissory note which was payable by the taxpayer only if he received his tax refund. The $20,000 "payment" was not deductible in light of the financial inability of the corporations to market the speed-reading course and the lack of a reasonable expectation of profit.

In the Court of Appeal, Hugessen J.A. stated (p. 6570):

... For an activity to qualify as a 'business' the expenses of which are deductible under paragraph 18(1)(a), it must not only be one engaged in by the taxpayer with a reasonable expectation of profit, but that profit must be anticipated to flow from the activity itself rather than exclusively from the provisions of the taxing statute.

Mattabi Mines Ltd. v. Ontario (Minister of Revenue), [1988] 2 CTC 294, [1988] 2 S.C.R. 175

direct causal connection to income need not be demonstrated

In response to a submission that mining machinery and equipment had not been purchased "for the purpose of earning income" because the profits initially generated by the mine would be eligible for a federal and provincial tax holiday, Wilson J. stated:

If [as established in case law cited by her] there is no need to demonstrate a causal connection between a particular expenditure and a particular income, and no need for the income to be generated in the same year in which the expenditure was made, then it would not seem to matter whether Mattabi suffered tax losses in 1971 or that it would have been exempt from tax had it made a profit. The only thing that matters is that the expenditures were a legitimate expense made in the ordinary course of business with the intention that the company could generate a taxable income some time in the future.

Mott v. The Queen, 88 DTC 6359, [1988] 2 CTC 127 (FCTD)

Since travelling expenses incurred for the purpose of commuting between one's place of residence and place of business are not deductible, aircraft expenses incurred for the purpose of travelling between the taxpayer's home and his orchard business were non-deductible. In addition, since the expenses of travelling between one's residence and business en route to another business, and back, are also not deductible, aircraft expenses incurred by the taxpayer for purposes of travelling between his law practice and his orchard were also not deductible because they involved commuting between two different businesses and his residence.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 31 - Subsection 31(1) 65

The Queen v. Royal Trust Corp. of Canada, 83 DTC 5172, [1983] CTC 159 (FCA)

It was noted that the question to be answered under s. 18(1)(a) (unlike S.6(1)(a) of the Income War Tax Act, 1948) is whether the outlay or expense "was incurred for the purpose of gaining or earning income - not 'the income' (which implies a specific source of income) and not 'wholly, exclusively and necessarily ...' therefrom, but simply 'for the purpose of ...'". Expenditures incurred in the raising of capital to be used in a company's operations accordingly were within the broad words of the exception to s. 18(1)(a) (a provision which, in effect, is incorporated by reference into s. 14(5)(b)(i), which latter provision was the section before the Court).

The Queen v. Dorchester Drummond Corp. Ltd., 79 DTC 5163, [1979] CTC 219 (FCTD)

The defendant company bought land with the intention of building a highrise office building thereon, but instead operated a parking lot on the property until a City bylaw prohibited the operation of parking lots in the area. Property taxes were deductible expenses even after the company ceased to derive revenues from the property. The company never entirely abandoned its desire to develop the land as a revenue producing property, and it derived interest from loans (the making of loans being part of its business).

Deputy Minister of Revenue (Quebec) v. Lipson, [1979] CTC 247, [1979] 1 S.C.R. 833

requirement to incur to generate profit

The shareholders of a company which was incorporated in 1961 to own and operate an apartment building, in 1962 leased the building from the company for a three-year renewable term and suffered substantial losses. It was held that when they renewed the lease in 1965, they did not expect to make a profit and that the sole reason for renewal was to create a deductible loss. No profits were realized in respect of the apartment building until 1971, and even highly optimistic profit projections hardly succeeded in showing they could break even. Deduction of the entire loss for 1966 was denied by virtue of s. 15 of the Provincial Income Tax Act (R.S.Q. 1964).

Pigeon, J., stated that "in order for an expense to be admissible as a deduction from a taxpayer's income, it must have been incurred in order to make a profit. It is not enough that the expense was incurred in order to obtain gross income."

Frappier v. The Queen, 76 DTC 6066 (FCTD)

The taxpayer, who was a licensed investment dealer, made advances to her clients to cover their losses when the brokerage company for which she worked went into bankruptcy. The advances became deductible losses in the subsequent year (when they were established to be irrecoverable) given that her purpose was to maintain the clients as a source of revenue and continued referrals.

Sunshine Mining Co. v. The Queen, 75 DTC 5126 (FCTD)

Damages paid by the taxpayer as a consequence of its failure to perform exploration work under an agreement to earn one-half interests in mining properties satisfied the test in s. 18(1)(a).

The Queen v. Clark, 74 DTC 6242, [1974] CTC 305 (FCTD)

A cash-basis farmer purchased cattle from a cattle company at the end of his taxation year on the understanding that the cattle company would repurchase the cattle for the same amount (minus its commission) at the beginning of the following taxation year. Since the taxpayer made the outlay for the sole purpose of reducing his taxes in the year, it was not deductible.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Old 60

First Pioneer Petroleums Ltd. v. MNR, 74 DTC 6109, [1974] CTC 108 (FCTD)

income taxes not incurred to generate profit

Income taxes are not deductible expenses because, "by their very nature the income taxes were incurred because income was gained or produced and not for the purpose of gaining or producing it." In addition "profit" is that which is charged with income tax, rather than the residual amount.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 256 - Subsection 256(2.1) 60

E.R. Squibb & Sons Ltd. v. MNR, 73 DTC 5139, [1973] CTC 120 (FCTD)

In 1952, the taxpayer purchased 52 acres of land outside Montreal in order to construct its own facilities for use in research, manufacturing and marketing. The Minister disallowed the deduction of 84% of the municipal taxes on the ground that they related to unoccupied land. Since the vacant land was retained in the reasonable expectation of future expansion for which the land would be utilized, the municipal tax expenditures were deductible.

Henry v. Minister of National Revenue, 72 DTC 6005, [1972] CTC 33, [1974] S.C.R. 155

The taxpayer was an anaesthetist who supplied his services to a hospital, maintained an office at another location (Douglas Street) in common with a group of other anaesthetists at which they kept their records and billed and received accounts for their services, and used a den in his home (one and a half miles from the hospital) where he made out his accounts. The Minister allowed the taxpayer his expenses in going to and from his Douglas Street office and for emergency calls, as well as for trips between his home and the hospital in the evenings, but disallowed his claims for expenses in going to and from the hospital each working day of the week. In finding that the latter expenses were non-deductible, Hall J. stated:

I am unable to discern any difference between the appellant and the self-employed owner of any business who maintains a home from which he leaves in the morning and returns in the late afternoon as a matter of course.

In the Exchequer Court (69 DTC 5395) Sheppard D.J. had made a finding of fact (at p. 5397) that "both objectively and subjectively the house was a home and not a base of professional operations".

Olympia Floor & Wall Tile (Quebec) Ltd. v. MNR, 70 DTC 6085 (FCTD)

donations deductible as business expenses rather than as gifts

Gifts which the taxpayer made to Jewish organizations in the Montreal area in amounts over $100 were accepted to have been made for the purpose of increasing its sales and, therefore were deductible in computing its income. Jackett P stated (at p. 6089) that he could find "no inherent incompatibility between an ‘outlay…for the purpose of…producing income' and a gift to a charitable organization." Conversely, "even though they took the form of contributions to charitable organizations [they] were not ‘gifts' within the meaning of…section 27(1)(a) [the predecessor of s. 110.1(1)(a)]" (p. 6090).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.1 - Subsection 110.1(1) - Paragraph 110.1(1)(a) donations deductible as business expenses rather than as gifts 94

British Columbia Power Corporation, Limited v. Minister of National Revenue, 67 DTC 5258, [1967] CTC 406, [1968] S.C.R. 17

The taxpayer incurred various expenses in connection with communicating with its shareholders respecting B.C. legislation under which its shares of a public utility company (which represented its principal asset) were expropriated and respecting the progress of its successful action to have such legislation declared ultra vires. In finding such expenses to be deductible, Martland J. noted that they did not represent capital expenditures because they were not laid out to preserve a capital asset, and stated (at p. 5264):

The reasonable furnishing of information from time to time to shareholders by a company respecting its affairs is properly a part of the carrying on of the company's business of earning income and a corporate taxpayer should be entitled to deduct the reasonable expenses involved as an expense of doing business.

Associated Investors of Canada Ltd. v. MNR, 67 DTC 5096 (Ex. Ct.)

Before going on to find that the taxpayer was entitled to write off the irrecoverable amount of advances made by it to an employee, Collier J. stated (at p. 5099):

It was not argued that a loss could not be taken into account in computing profit unless it arose from an operation or transaction calculated or intended to produce a profit. It is clear that such a contention could not succeed. A profit arising from an operation or transaction that is an integral part of the current profit-making activities must be included in the profits from the business ... . If such a profit must be included in computing profits from a business then a loss arising from any such source ... must also be taken into account ... .

Southam Business Publications Ltd. v. MNR, 66 DTC 5215, [1966] CTC 265 (Ex. Ct.), briefly aff'd 67 DTC 5150 (SCC)

Noël J. held that there is no question that an expenditure made by the taxpayer to acquire the Financial Times was made for the purpose of gaining or producing income within the meaning of s. 12(1)(a) of the pre-1972 Act.

Premium Iron Ores Ltd. v. Minister of National Revenue, 66 DTC 5280, [1966] CTC 391, [1966] S.C.R. 685

legal exepnses incurred in challenging US assessments - deductible

Before concurring with Martland and Spence JJ. that legal expenses incurred by the taxpayer in connection with challenging potential assessments against its income by the U.S. revenue authorities were deductible, Hall J. stated (at pp. 5286, 5292):

A company such as the appellant exists to make a profit. All its operations are directed to that end. The operations must be viewed as one whole and not segregated into revenue producing as distinct from revenue retaining functions, otherwise a condition of chaos would obtain ... To limit the expenditure, if it is to qualify as a deductible, to the income of the particular year in which it was made requires writing into s. 12(1)(a) of the Income Tax Act words which Parliament did not put there. ... No limitation as to time can be found in the section in question.

Quemont Mining Corp. Ltd. v. MNR, 66 DTC 5376, [1966] CTC 570 (Ex. Ct.), aff'd 70 DTC 6046 (SCC)

Quebec mining taxes non-deductible

"Duties" payable on a graduated scale under the Quebec Mining Act on the difference between the gross value of mining output and specified deductions were a non-deductible tax on profits, rather than expenditures (as in Harrods) which were not dependent upon whether profits were made or not, and which were paid in order to earn profits.

Seaboard Advertising Co. Ltd. v. MNR, 65 DTC 5188, [1965] CTC 310 (Ex. Ct.)

Unexpired advertising contracts which the taxpayer acquired as part of the purchase of substantially all the business of a competitor were acquired for the purpose of gaining or producing income from its business.

MNR v. Eldridge, 64 DTC 5338, [1965] 1 Ex. C.R. 758

The taxpayer, the operator of an unlawful call girl business, was entitled to deduct the expenses incurred in earning the profits of that business where they were substantiated with documentary evidence. The permissible deductions included the expenses incurred in obtaining bail bonds for her employees, legal expenses paid to defend her employees from criminal charges, the cost of hiring individuals to provide physical protection for her employees, and rent paid for the premises used by her employees.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business profits of call girl operation were taxable 79

MNR v. E.H. Pooler & Co. Ltd., 62 DTC 1321 (Ex. Ct.)

TSX fine non-deductible

The taxpayer, which carried on business as a stock broker, was required to pay a fine to the T.S.E. as a result of one of its vice-presidents inducing other member firms to open up margin accounts in the names of clients of the taxpayer who subsequently were prosecuted in respect of their trading activities in the stock of a mining company.

After finding that the fines clearly were not "made" for an income-producing produce, Thurlow J. went on to find that they also were not "incurred" for an income-producing purpose given that the activity of the vice-president in introducing the clients to competitors of the taxpayer was not established to have promoted the taxpayer's business or otherwise to have occurred as part of the taxpayer's business.

Meteor Homes Ltd. v. MNR, 61 DTC 1001, [1960] CTC 419 (Ex. Ct.)

A payment which one group of shareholders (the "Schoelas") caused the taxpayer to make to another group of shareholders (the "Manasters") was found to have been motivated by the desire of the Schoelas "to break a deadlock of their own creation and to obtain absolute control not only of the appellant company but also of [another company with similar share ownership]" (p. 1004). There was no satisfactory evidence that the payment was made in lieu of salary which otherwise would have been earned by the Manasters. Accordingly, it was non-deductible.

Bannerman v. Minister of National Revenue, 59 DTC 1126, [1959] CTC 214, [1959] S.C.R. 562

In discussing the replacement of s. 6(a) in the Income War Tax Act by s. 12(1)(a) of the Income Tax Act, Kerwin C.J. stated (p. 1127):

"In view of the disappearance of what was s. 6 ... many of the decisions under that Act are inapplicable. However, this Court held ... that a certain degree of latitude must be allowed in determining the question whether the disbursements or expenses were laid out or expended for the purpose of earning the income, i.e., with the object and intent that they should earn the particular gross income reported for the taxation period. Under s. 12(1)(a) of the present Act, it is sufficient that an outlay be made or expense incurred with the object or intention that it should earn income, but since in one sense it might be said that almost every outlay or expense was made or incurred for that purpose, a line must be drawn in the individual case depending upon the circumstances and bearing in mind the provisions of s. 12(1)(b)."

British Columbia Electric Railway Company Limited v. The Minister of National Revenue, 58 DTC 1022, [1958] CTC 21, [1958] S.C.R. 133

Before finding that payments made to municipalities in order to secure their acquiescence to the taxpayer's application for permission to terminate passenger railway service in the area, were payments whose deduction was not prohibited by s. 12(1)(a) of the pre-1972 Act (before considering the prohibition against the deduction of capital expenditures in s. 12(1)(b)), Abbott J. stated (pp. 1027-1028):

"Since the main purpose of every business undertaking is presumably to make a profit, any expenditure made 'for the purpose of gaining or producing income' comes within the terms of s. 12(1)(a) whether it be classified as an income expense or as a capital outlay."

Royal Trust Co. v. MNR, 57 DTC 1055, [1957] CTC 32 (Ex. Ct.)

It was found that the taxpayer's purpose in paying the admission fees and annual dues of social clubs of which its officers were members "was to increase its business through personal contacts of its officers with persons whom it would not otherwise readily reach". Accordingly, such expenditures were made by it for the purpose of earning income from its business.

Montship Lines Ltd. v. MNR, 54 DTC 1151 (Ex. Ct.), briefly aff'd 55 DTC 1060 (SCC)

Repair expenditures which the taxpayer incurred in accordance with the terms of agreements for the sale by it of two vessels were incurred in order to carry out the sale of capital assets rather than for the purpose of gaining or producing income from its business, and therefore were non-deductible.

Imperial Oil Ltd. v. MNR, 3 DTC 1090, [1947] CTC 353 (Ex. Ct.)

Due to the negligence of its employees a vessel of the taxpayer caused another company's vessel to sink. A substantial sum which the taxpayer paid in settlement of the other company's claim was fully deductible given that "negligence on the part of the appellant's servants in the operation of its vessels, with its consequential liability to pay damages for collision resulting therefrom, was a normal and ordinary risk of the marine operations part of the appellant's business and really incidental to it" (p. 1096).

See Also

DiCaita v. The Queen, 2021 TCC 5 (Informal Procedure)

expenses of flight, at the conclusion of Las Vegas vacation followed by attending at a rental property in Phoenix, from Phoenix back home were deductible

A condo unit, which the taxpayer had been renting-out for many years, was vacated by the current tenant and ceased to be rentable at a reasonable rent as a result of extensive remediation to the exterior of the building that was commissioned by the condo board. The taxpayer used this as an opportunity to attend (at the beginning of 2012) to long overdue repairs to recondition the unit’s interior, which cost about 5% of the FMV of the unit. After this work, the taxpayer increased the rent by almost 50%, and was ultimately able to rent it out (at the end of 2012) at the increased rent.

In rejecting the Crown’s submission that the repair expenditures were not deductible because the unit was not rented out during that year, Masse DJ noted (at para. 23) that “a property does not need to be generating income at every stage of operation in order to be considered a source of income.” Similarly, management fees, mortgage interest, and property taxes incurred in relation to the unit while it was not rented out also were fully deductible.

The taxpayer also had a rental property in Phoenix. He and his spouse flew down to Las Vegas on a vacation, but he then rented a car so that he could drive down to Phoenix (accompanied by his spouse) so that he could attend to issues regarding the rental unit – then they flew directly from Phoenix back home (in Vancouver). CRA allowed only the car rental expense. Masse DJ also allowed the cost of air fare of the taxpayer (but not his spouse) back to Vancouver as a deduction. Accommodations and food incurred in Phoenix also were deductible.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense reconditioning of rental unit allowed as deductible expense 242
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit rental unit was a source of income even when not rentable due to on-going renovations 77
Tax Topics - Income Tax Act - Section 18 - Subsection 18(12) significant time must be spent in home office to justify significant deduction 166

Spiegel Sohmer Inc. v. Agence du revenu du Québec, 2021 QCCQ 69

reimbursing expenses for the wedding of a law firm partner’s daughter were non-deductible to the firm management company

The individual taxpayer (“Raich”), who was a senior tax partner of a Montreal law firm, sought and received reimbursement from the firm’s management company (Spiegel Sohmer Inc, of which Raich was the largest shareholder) for 97/218 of the $169,000 cost of the Montreal wedding of Raich’s daughter in 2012. This amount was calculated by him on the basis that 97 of the 218 guests at the reception were clients, business contacts or partners of Raich. In maintaining that the reimbursed amount was deductible in computing its income, Spiegel Sohmer Inc. submitted that such expenses were incurred “in order to solidify the professional and commercial relations of Mr. Raich with his clients” (para. 30, TaxInterpretations translation).

In finding that the reimbursed expenses were non-deductible, and that their reimbursement gave rise to a taxable benefit to Raich, Bourgeois JCQ noted that no former partner of Raich had testified as to what discussions had occurred regarding the expense reimbursements and the business opportunity arising from the marriage of Raich’s daughter, and stated that it accordingly was impossible for the Court “to determine if such event presented an important promotional aspect to the firm” (para. 43).

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Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) reimbursing expenses for the wedding of a law firm partner’s daughter generated a taxable benefit 164

Paletta v. The Queen, 2019 TCC 205

expenses non-deductible because partnership expected to be repurchased before any income generated

A taxpayer used U.S.$82M that had largely been indirectly financed by Twentieth Century Fox to fund, as partner, prints and advertising expenses (“P&A expenses”) respecting a film that Fox allegedly had sold to the partnership for US$128.3M, but with Fox having an alleged option to repurchase the film. The second related taxpayer, engaged in a quite similar transaction.

In denying the claimed losses, Hogan J stated (paras. 243-244):

[T]he options were shams designed to mask the parties’ agreement that Fox would reacquire the films prior to their commercial release.

Consequently, the P&A expenses allegedly borne by the partnerships were not incurred for the purpose of earning income.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Sham film marketing partnership loss denied on the basis that an alleged option was a sham 415
Tax Topics - Income Tax Regulations - Regulation 231 - Subsection 231(6) expectation of repurchase option being exercised generated a prescribed benefit 207
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate rental revenues were incidental to secondary intention save for land with 25-year hold 310

Tournier v. The Queen, 2018 TCC 229 (Informal Procedure)

expenses incurred after business cessation were deductible

A retired member of Nova Scotia bar was permitted to deduct $1200 of annual storage fees for client files notwithstanding that her practice had ceased two years’ previously. After noting that retention of the client files was professionally recommended, Bocock J stated that deductibility was “consistent with the notion of unavoidable expenses necessarily expended in future years referable to previous income contemplated in … Poulin, Raegele and Langille.”

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Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Start-Up and Liquidation Costs file storage fees incurred after business cessation were deductible 262

Béliveau v. The Queen, 2018 TCC 87

premiums under policies to cover business expenses in the event of illness were fully deductible

The taxpayer, a self-employed dental surgeon, received benefits totalling over $600,000 under three Great-West policies during a two-year period of illness. Two of the policies provided coverage for her monthly general professional expenses, and the third policy, styled as professional sickness insurance, provided monthly amounts in the event of her illness. After affirming the Minister’s assessment, which treated the amounts paid out to the taxpayer under the first two policies as s. 9 income, Favreau J went on to indicate (at para. 33) that the premiums under the two policies (which the taxpayer had not deducted in computing her income) were deductible.

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Tax Topics - Income Tax Act - Section 9 - Compensation Payments insurance benefits received by an ill dental surgeon to cover her practice expenses were taxable receipts 280

Fonds de solidarité des travailleurs du Québec (F.T.Q) v. The Queen, 2018 TCC 3, aff'd on s. 18(1)(a) grounds 2019 CAF 36

purpose of payment was to extricate from a regional economic-development obligation rather than to enhance business reputation

The corporate taxpayer agreed with the City of Chandler that it would no longer use any loan repayment proceeds received by it from a City-owned corporation - that had failed in an costly attempt to restart a paper mill close to the City – to invest in a prospective replacement economic-development LP to be sponsored by the City, but would instead make a “gift” of the loan repayment proceeds (which ended up totalling $9.3 million) to the City, for which it received charitable receipts. Ouimet J found that there was no “gift” and, thus, no s. 110.1(1)(a) deduction, as the taxpayer had received valuable consideration for its $9.3 million payments, being a release of “its obligation to negotiate in good faith to create [and fund] a limited partnership” (para. 46).

In also rejecting the taxpayer’s argument, in the alternative, that deduction of the $9.3 million was not prohibited by s. 18(1)(a), he found (at para. 58) that the funds had been paid in order to leave to the City the task of using the sums to economically develop the region and to avoid involvement in the proposed LP and not “with the purpose of re-establishing its reputation in the Gaspe region following its involvement in the unsuccessful relaunching of the mill,” so that the amounts were not paid for the purpose of earning business income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.1 - Subsection 110.1(1) - Paragraph 110.1(1)(a) consideration for "gift" was elimination of obligation to invest the funds 523
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts payment relieving of a correlative contractual obligation was not a gift 125

Emballages Starflex Inc. v. Agence du revenu du Québec, 2016 QCCA 1856

gifts to charities likely cannot be deducted as business expenses

The taxpayer requested, at the trial's opening, to amend its pleadings to claim, in the alternative, that donations made by it to U.S. charities, which it had claimed as charitable deductions under the Taxation Act, were deductible as business (promotional) expenses. In affirming the denial below of this request, the Court stated (at para. 11, TaxInterpretations translation):

[T]he TA provides a complete and specific code of rules regarding the deduction of gifts to charities subject to certain limits and restrictions, notably regarding the maximum permitted amount and the obligation of the charity to be registered with the Minister. The specific tax treatment provided in the TA respecting gifts must prevail similarly to the pronouncements of the Supreme Court in Symes... .The Court specified there that child care expenses could not be deducted as business expenses under the applicable tax principles, in the face of a specific and complete regime for child care expenses provided in section 63 of the Income Tax Act. The same reasoning should be favoured in addressing the treatment of gifts. The Supreme Court further commented in discussing Olympia ... and Impenco Ltd…: “If a specific provision exists which limits deductibility in respect of that purpose, then that should be the end of the matter.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.1 - Subsection 110.1(1) - Paragraph 110.1(1)(a) charitable donations not deductible as business expense 181
Tax Topics - Statutory Interpretation - Specific v. General Provisions charitable gift rules a complete code 158

Acornwood LLP & Ors v. Revenue and Customs Commissioners, [2016] BTC 517, [2016] UKUT 0361 (Tax and Chancery Chamber)

regard had to the actual use of the taxpayer's expenditure by the expenditure’s recipient where so directed by taxpayer

In the appeal before him by five limited liability partnerships (the “LLPs”) respecting the disallowance of expenditures as trading losses, Nugee J indicated (at para. 6) that he was content to proceed on the basis of a simple example provided by the LLPs’ counsel using the figure of 100 to represent sums contributed to an LLP by individual members.

The members contributed 20 from their own resources and borrowed 80 from a bank. The LLP paid 5 as an advisory fee, and paid the remaining 95 to the principal exploitation company (“Shamrock”). Shamrock paid 90 to the company which was responsible for producing the end product (e.g., a book). This production company simultaneously agreed to acquire a share of revenues from the exploitation of the product from Shamrock for a price of 80, with the effect that it was left with a net of 10, and Shamrock held 85. Shamrock applied 80 of the 85 as collateral for a letter of credit. The interest on the deposit was used by Shamrock to pay an income stream to the LLP, that matched the interest payments which the LLP members were required to pay on their bank loan. The deposit also was used to pay the LLP the “Final Minimum Sum,” due from Shamrock to the LLP, which ensured repayment of the principal.

In affirming the finding below that the 80 was not an expense incurred wholly and exclusively for the purposes of the LLP’s trade, Nugee J stated (at para. 85:

[T]he 80 was not paid for exploitation at all. It was not needed by Shamrock, who only needed to spend 10 of the 15 to secure the production… . Shamrock…found it a nuisance. It was not in any sense used by Shamrock in fact for exploitation. That last point of course does indeed look at what the recipient does with the money, but in circumstances where this is to the knowledge of, and indeed intended and required by, the payer. …There is no commercial difference between the members paying 15 for Shamrock’s services without having borrowed 80 and without any rights to guaranteed repayment of the 80, and the members paying 95, of which they have borrowed 80 and are guaranteed to be repaid 80… .

Grenon v. The Queen, 2014 DTC 1207 [at 3805], 2014 TCC 265, aff'd 2016 DTC 5009 [at 6544], 2016 FCA 4

child-support payments were non-deductible

Graham J found that the taxpayer's legal expenses incurred in the course of his separation from his former spouse were not deductible as a business or property expense. Payors of child support have never been entitled to any such deductions (para. 8).

Emballages Starflex Inc. v. ARC, 2015 QCCQ 7455 (Cour du Québec)

claiming a charitable deduction inconsistent with treating same outlay as a business expense

At the trial's opening, the taxpayer requested an amendment to its pleadings to argue in the alternative that donations made by it to U.S. charities, which it had claimed as charitable deductions under the Taxation Act, were deductible as business (promotional) expenses. Before denying the charitable deduction claims, and in finding that the additional claim should not be entertained, Pokomandy JCQ stated (at paras. 66-67, 71):

The amendment implicitly changes the nature of the disbursement… .

This new position is difficult to reconcile with the original claims which Starflex appears to have not renounced. One cannot claim to have donated a sum and alternatively to have expended it in earning income from a business.

…[T]he Notice of Objection…contains no mention of the possible qualification of these expenditures as business expenses.

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Tax Topics - Treaties - Income Tax Conventions - Article 21 Quebec provision providing Quebec exemption to amounts exempted by Canada did not apply to Art. XXI, para. 7 of the US Convention 214

Bessette v. ARC (Quebec Revenue Agency), 2014 QCCQ 4329

professional "services" corporation with no employees

The dental practice of the taxpayer paid fees of approximately 70% of its revenues to a services company (which was wholly-owned by the dentist through a holding company) pursuant to annual contracts which (in an apparently back-dated Appendix) provided for the provision of management and health services to the practice by the services company. Gouin JCQ stated (at para. 34, TaxInterpretations translation) that "the evidence…demonstrates clearly that [the services company] had no employees and did not purchase any supplies for eventual use in management or health services."

Before confirming ARC's denial of the deduction of the fees in toto under TA, ss. 128 and 140 (similar to ITA, ss. 18(1)(a) and 67), Gouin JCQ stated (at para. 30) that "it is necessary to prove that the management expenses constitute genuine expenses and not a sham in the sense that the concluded agreements represented genuine transactions between the parties," and then quoted with approval the statement in Fillion v. The Queen, 2004 FCA 135, at para. 72 [clumsy official translation below] that:

In order to claim an expense, it is not enough to make an accounting entry backed by a vague invoice [and]… it must be established that the evidence was real, fully supported and justified and, moreover, that the expenditure was incurred in order to produce business income… .

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Tax Topics - General Concepts - Sham professional "services" corporation with no employees 209

Michaud v. The Queen, 2014 DTC 1089 [at 3152], 2014 TCC 83 (Informal Procedure)

combined prospecting/camping trips

Hogan J found that the fact that the taxpayer often took his children along on his prospecting trips did not change that the prospecting activities constituted a business. The prospecting activities were carried out in a commercial manner, and ultimately lead to the discovery of gold deposits.

Garber v. The Queen, 2014 DTC 1045 [at 2812], 2014 TCC 1

expenses mere window-dressing

Each taxpayer bought units in a limited partnership, which was to acquire a large yacht to be used for catered vacation charters. However, the capital raised was grossly insufficient for accomplishing the marketed objectives, and Rossiter ACJ characterized the arrangements as a "Ponzi-like scheme [which] was set to collapse eventually" (para. 344).

After finding that "the Limited Partnerships did not carry on a genuine business which constituted a source" (para. 389), Rossiter ACJ went on to find that most of the claimed expenses giving rise to partnership losses were fictitious, and that "expenses that were not fictitious or phony were incurred as window dressing for the purpose of perpetuating a fraudulent scheme" (para. 392), so that they did not satisfy s. 18(1)(a) even if they had been incurred in the course of a business.

Harvey v. The Queen, 2013 TCC 298

deduction based on authorized use

The taxpayer's teenaged daughter and her friends (all without a driving licence) took the taxpayer's Jeep without his permission and got into an accident, as a result of which the taxpayer incurred over $15,000 in repair expenses. After stating (at para. 72) that "what I must do is to determine what use was being made of the vehicle when it was stolen, not when it was actually in the accident," Graham J found that as the taxpayer had not authorized this use, the taxpayer could deduct a portion of the repair expenses based on the percentage of business use of the vehicle prior to the day of the accident.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 196
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) guilty plea is prima facie proof of income from tax evasion 111

Lequier v. The Queen, 2013 DTC 1012 [at 68], 2012 TCC 380

The taxpayer bought a 10-room inn and lived in it. He started a company ("La Zénon) to operate the inn, which had a restaurant and bar.

Paris J found that inn was not a source of income to the taxpayer, and hence not a source of business losses. The taxpayer charged La Zénon $2000 per month for rent, which was not enough to cover insurance, taxes and maintenance. The taxpayer therefore had no reasonable expectation of profit.

Motech Molding Inc. v. The Queen, 2012 DTC 1293 [at 3913], 2012 TCC 351

The taxpayer held two corporations ("Tesla" and "Orion"), and Tesla Packaging held 55% of the shares of another corporation ("Phoenix"). Tesla and Phoenix were both in the business of manufacturing and marketing stretch wrap packaging equipment, while Orion was in the business of car racing. The taxpayer and all of the corporations were directed and administered by the same individual ("Mucha"), who was also the taxpayer's only shareholder and Orion's only driver. Phoenix had never paid dividends to Tesla, which in turn had never paid dividends to the taxpayer.

D'Auray J. found that, in accordance with Lyncorp, sponsorship and maintenance fees ($331,277 and $246,786 in 2005 and 2006) that the taxpayer paid to Orion to promote Phoenix were not deductible as business or property expenses. She stated (at paras. 80-81):

Simply stated, the potential receipt of dividends was too remote.

It is also difficult to understand how the payments made by Motech to Orion Racing for the race car maintenance and repairs expenses were for the purpose of gaining dividends from Tesla. There is clearly no nexus between the operating expenses of Orion Racing and the alleged dividends income from Phoenix Innotech via Tesla.

D'Auray J. also suggested that the deductions might be disallowed under s. 18(1)(h) or s. 67, but the point was moot.

Chow v. The Queen, 2011 DTC 1196 [at 1088], 2011 TCC 263

V.A. Miller J. found (at para. 27) that the seizure of approximately $110,000 of proceeds of drug trafficking at the taxpayer's apartment did not give rise to a deductible business expense, as the deduction was prohibited under s. 67.6. She also found (at para. 27) that the amount would not have been deductible in any case, reiterating her position in Anjara that forfeitures are not normally incurred to gain or produce income.

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Tax Topics - Income Tax Act - Section 67.6 77

Big Bad Voodoo Daddy v. The Queen, 2011 DTC 1173 [at 955], 2011 TCC 226 (Informal Procedure)

LLC a corporation

The taxpayer was a U.S. limited liability corporation (LLC) which performed jazz concerts in Canada. A CRA appeals officer stated in his testimony (para. 957) "that a U.S. LLC cannot deduct for Canadian tax purposes, the salaries paid to members of the LLC because a U.S. LLC is a partnership for U.S. federal income tax purposes...."

Favreau J. stated (at para. 26) that "the long-standing position of the CRA is that a U.S. LLC is treated as a corporation for all purposes of the Act regardless of whether the LLC is treated as a corporation or a partnership for U.S. tax purposes." Therefore, salaries paid to band members were deductible from income. However, the taxpayer failed to meet its business record-keeping obligations under s. 230 so its deductions were denied on that basis.

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Tax Topics - Income Tax Act - Section 96 LLC treated as corporation 140

4145356 Canada Limited v. The Queen, 2011 DTC 1171 [at 937], 2011 TCC 220

After finding that the taxpayer was entitled under s. 126(2) to a foreign tax credit in respect of its share of US corporate income tax paid by a Delaware limited partnership of which it was a limited partner, Webb J. went on to find that such taxes were not deductible for purposes of the Act in computing the income of the partnership. He stated (at para. 61):

It seems to me that income taxes paid to the U.S. government as a result of earning income would not be made or incurred for the purpose of gaining or producing income but would be incurred as a result of gaining or producing income.

Bilous v. The Queen, 2011 DTC 1126 [at 710], 2011 TCC 154

The individual taxpayer was the principal shareholder of the corporate taxpayer, a canola farm supplier with annual sales in the tens of millions. Sheridan J. found that the taxpayers' expenses in establishing and operating a snowmobile museum were deductible as business expenses and capital cost allowances, because the costs were incurred to promote the canola business. In reaching that conclusion, she noted that the individual taxpayer often used the topic of snowmobiles as a "conversational in" to build a rapport with potential customers (who, being canola farmers, were often snowmobilers themselves), and that the costs in operating the museum were small compared to the taxpayers' revenue. Moreover, given that the costs had a clear connection to earning business income, the Court could not second-guess the taxpayers' business judgment.

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Tax Topics - Income Tax Act - Section 67 130

Bourget v. The Queen, 2011 DTC 1032 [at 143], 2010 TCC 642 (Informal Procedure)

The taxpayer could not deduct a payment made to the Receiver General in satisfaction of his director's liability for source deductions under s. 227.1. Sheridan J. stated at para. 5: "By the time the Appellant made the payment to the Receiver General in respect of [his corporation's] source deductions, the company had long since ceased operations; from this it follows that there was no possibility of the Appellant having acquired his debt for the purposes [of producing income from business]."

Doiron v. The Queen, 2010 DTC 1348 [at 4325], 2010 TCC 519, aff'd 2012 DTC 5105 [at 7092], 2012 FCA 126

The taxpayer, a lawyer, received a four-year sentence and was suspended from practising law as a result of his conviction for obstruction of justice in respect of his defence of a client. (A related conviction of the taxpayer for money laundering was reversed on appeal.) McArthur J. noted (at para. 190) that, "while it is difficult to determine the Appellant's primary motivation," his legal expenses "arose directly from his law practice." McArthur J., applying Iacobucci J.'s obiter dicta in Symes, found at para. 21 that the taxpayer's related legal expenses would not "have been incurred if the taxpayer was not engaged in the pursuit of business income [his income from the practice of law]." Accordingly, the fees were deductible in computing the taxpayer's professional income.

Labow v. The Queen, 2010 TCC 408, 2010 DTC 1282 [at 3956], aff'd 2012 DTC 5001 [at 6501], 2011 FCA 305

health plan was disguised deferral scheme

The taxpayers disguised a tax deferral scheme as a health plan for their employee wives. Bowie J. found that the plans had not been entered into with considered judgment as to their commercial benefit to the taxpayers' firm. Therefore, the contributions to the plans had not been made for the purpose of earning income.

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Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) taxpayers appreciated the spurious factual underpinnings 109

Les Entreprises Réjean Goyette inc. v. The Queen, 2009 DTC 1880, 2009 TCC 351

Management fees paid by the taxpayer to an affiliated company which had non-capital losses were non-deductible by it given that the only evidence of services provided in consideration for the management fees was of services provided by the indirect sole shareholder of the two corporations, who had already been fully paid for his services by the taxpayer. Furthermore, the fees were paid by the taxpayer without it being legally bound to do so.

Jolly Farmer Products Inc. v. The Queen, 2008 DTC 4396, 2008 TCC 409

In finding that the taxpayer was entitled to deduct capital cost allowance in respect of houses situated close to the taxpayer's greenhouse operation and occupied by employee-shareholders of the corporation (all of whom had similar religious beliefs), Bowman, C.J. stated (at para. 23-24):

Once I conclude that it is a business decision to house the employees in company-owned houses and to provide other facilities in the Commons it is not up to me or the Minister to question that decision, even if I were to disagree with it, which I do not... . This case is an excellent example of the CRA seeking to substitute its business judgment for that of the taxpayer.

Mensah v. The Queen, 2008 DTC 4358, 2008 TCC 378

Bowman C.J. noted (at para. 35) that amounts that an employee may have stolen from the till of a delicatessen business would have given rise to deductible expense.

Anjaria v. The Queen, 2008 DTC 2306, 2007 TCC 746 (Informal Procedure)

V.A. Miller J. stated (at para. 6):

First of all, the forfeiture of the proceeds of crime was not an expense or outlay incurred by the Appellant. The proceeds of crime were the profits or net income earned by the Appellant. The forfeiture was not incurred to gain or produce income from business and did not assist the Appellant in producing income from his business of selling drugs. Justice Angers recently decided the appeal of Brizzi v. R., [2007] 4 C.T.C. 2334 ([2007 TCC 226] [Informal Procedure]), an appeal where the facts were very similar to those in the present appeal. I agree with his decision and especially in paragraph 7 when he stated the following:

... The loss incurred through the forfeiture is in my opinion a consequence of carrying on an illegal business activity and therefore certainly not an expense that assisted or resulted in producing income.

ZR v. The Queen, 2007 DTC 1577, 2007 TCC 598

The taxpayer was permitted to deduct as a business loss amounts paid by her in settlement of claims brought by a franchisor against her bankrupt husband, who had personally guaranteed franchise obligations of companies in which they had invested. McArthur J. noted (at para. 18) that in determining the potential deductibility of damages "it is appropriate to focus on the origin of the claim" and found that the origin of the claim was a franchise agreement which was entered into by the two companies for the purpose of earning income from a hotel business. He went on to find that if the purpose of making the settlement was instead relevant, that purpose was to allow the taxpayer and her husband "to continue carrying business in the motel industry" (para. 23) and that although the settlement also preserved the assets to the corporations, this was a secondary purpose.

Falkener v. The Queen, 2007 DTC 1470, 2007 TCC 514 (Informal Procedure)

The taxpayer was able to deduct costs of maintaining a dog (who helped protect llamas at his farm from danger) and cats (who were useful for rodent control). Bowie J. also stated (at para. 27):

Nor do I accept the respondent's argument that the veterinary fees associated with the terminal diagnosis of cancer and the resulting euthanasia and cremation of Ryder should be disallowed on the basis that those services could not contribute to producing income. If the animal's primary purpose is connected to producing income, as I have found, then the humane treatment at the end of its life is surely an incident of that.

Ellis v. The Queen, 2007 DTC 996, 2007 TCC 289, aff'd 2008 DTC 6230, 2008 FCA 92

A fee paid by the taxpayer to Ernst & Young LLP for advice in connection with strategizing as to how to monetize his shares through a forward exchange contract were not incurred to assist him in gaining or producing income from the shares and, therefore, were not deductible.

Renaud c. La Reine, 2006 DTC 3104, 2006 TCC 354

The taxpayer, who had made a proposal to creditors, was permitted to deduct trustee's fees incurred by him in making the proposal as the proposal was made for business purposes.

Wedge v. The Queen, 2005 DTC 1213, 2005 TCC 480

A compensation payment made by the taxpayer to the taxpayer's shareholder, his wife and children, who were employees of the taxpayer, in respect of their termination of employment by an affiliated corporation was deductible.

Welton v. The Queen, 2005 DTC 869, 2005 TCC 359

A "management fee" paid by the taxpayer, a self-employed real estate agent, to her husband was non-deductible. There was no documentary evidence to support the deduction other than invoices generated on a "totally retrospective" basis following a Revenue Canada audit. Sarchuk J. indicated (at p. 871) that:

There is substantial merit to the Respondent's position that what existed between the Appellant and her husband was nothing more than a domestic arrangement which was not and could not be considered to have created a legally binding agreement between them.

O'Flynn v. The Queen, 2005 DTC 556, 2005 TCC 230 (Informal Procedure)

The taxpayers were able to establish that a dental plan was available to all employees of the corporate taxpayer notwithstanding that only members of two families that owned the corporation availed themselves of the dental benefits. Accordingly, the dental premiums were deductible under s. 18(1)(a), and there was no inclusion in the individual taxpayers income by virtue of s. 6(1)(a)(i).

Shaver v. The Queen, 2003 DTC 2112, 2004 TCC 10

Expenses incurred by the taxpayer in taking seven people including him, his wife, and some Amway distributors (only two of whom were sponsored by him) to Las Vegas were not deductible given the silence in the evidence as to the role the guests played in enabling the taxpayer to earn income from his business, and given the substantial element of social entertainment in the trip.

Bains v. The Queen, 2003 DTC 376, 2003 TCC 211

The taxpayer had deliberately permitted a business colleague to mislead an investor ("Bhandar") into thinking that the taxpayer and his colleague had already invested significant sums in a business venture in which they were asking Bhandar to invest. After finding that damages for deceit that the taxpayer was required to pay to Bhandar were, in any event, not deductible because there was no evidence that the taxpayer's efforts to obtain Bhandar's money by deception were connected with a business or a venture in the nature of trade of the taxpayer, Rip T.C.J. went on to indicate (at p. 381):

However, even if I erred in so concluding, the actions of Mr. Bains in usurping money out of Mr. Bhandar is the egregious or repulsive breach that Iacobucci, J. states [in the 65302 case] could not be justified as being incurred for the purpose of producing income.

Costigane v. The Queen, 2003 DTC 254, 2003 TCC 67

The taxpayer, who was a dentist, entered into an arrangement with an off-shore company under which that company would pay him 95% of all invoices rendered by him in the month and retained the excess of the amount collected over 95% for itself. On the basis of a finding that this arrangement was entered into by him in order to protect himself against collections falling below 95%, the amounts received by the off-shore company were deductible on the basis that (p. 257):

Insurance expenses incurred to replace income, for whatever reason, are deductible.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 67 72

Foresbec Inc. v. The Queen, 2002 DTC 1786 (TCC), aff'd 2003 DTC 5455, 2002 FCA 186

At the time of the sale of a control block of the taxpayer, it and the purchasing shareholder "granted" to the vendor a consulting contract for the services of a former executive of the taxpayer associated with the vendor. The payments made under the contract were not deductible given that it was never contemplated that the contract would be implemented and all that it provided for was the obligation to make payments irrespective of the level of services provided.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Sham documents did not reflect legal reality 58
Tax Topics - General Concepts - Tax Avoidance documents did not reflect legal reality 58
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) 97

International Colin Energy Corp. v. The Queen, 2002 DTC 2185, 2002 CanLII 47015 (TCC)

finding an acquirer to maximize shareholder value

The taxpayer paid a fee to a financial advisor, calculated as 0.7% of the market value of its equity and of the amount of its long-term debt net of working capital, in consideration for advice provided in connection with considering alternatives to maximize shareholders' value, with an emphasis on merger possibilities. The transaction ultimately implemented entailed the taxpayer's shareholders selling their shares, pursuant to a plan of arrangement, to another publicly-traded oil and gas company in consideration for treasury shares of that purchaser.

In finding that the fee had been incurred by the taxpayer for an income-producing purpose, Bowman A.C.J. noted that the taxpayer was in a downward spiral (its assets were being sold in order to pay down a loan which, in turn, reduced its income-producing capacity and risked breach of its covenants to long-term creditors) and that retaining the advisor "was intended to improve the ability of the appellant to earn income by combining its resources with that of another entity".

Chamberlain v. The Queen, 2002 DTC 2050, 2003 TCC 307 (Informal Procedure)

The taxpayer's estranged wife obtained a court order to have the taxpayer jailed and, without authorization, took control of the taxpayer's business and arranged for all collections of accounts receivable to go into the account of her lawyer. Because she was continuing to operate the business after taking control (for example, she made payroll and source deduction payments) the money which she collected (and the taxpayer never received) reduced the taxpayer's profit from that business.

Fredette v. The Queen, 2001 DTC 621 (TCC)

A partnership that was owned by the taxpayer and trusts for his children owned (through a second partnership that was owned by the first partnership and the taxpayer's wife) a triplex, one unit of which was rented (by the second partnership) to her. Archambault T.C.J. found that the expenses of that partnership incurred in connection with the unit rented to the taxpayer's wife (and a pro rata portion of interest on money borrowed to fund his partnership interest) were not incurred for an income-producing purpose.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership 99
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) s. 245(4) did not apply to abuse of a Regulation - and not abusive to borrow at partner/shareholder level 402

Matt Harris & Son Ltd. v. The Queen, 2001 DTC 28 (TCC) (Informal Procedure)

The taxpayer, the operator of a wood contracting and construction business, was able to deduct the amount of racing expenses incurred by it (less prize money claimed) in respect of a stock car owned by it but driven by its sole shareholder and president, on the basis that such expenses were a form of advertising, and should not be disallowed simply because of the owner's satisfaction and interest in the activity.

Quantetics Corporation v. The Queen, 2000 DTC 2177 (TCC)

A $1.4 million bonus declared by the company and never paid by it was found to have been made pursuant to a legal obligation, with the result that it was found not to be deductible.

Coté v. The Queen, 99 DTC 5215 (FCTD)

A research program supervised by the taxpayer, who was associated with a Montreal hospital, was found to be a business in itself that was intended to produce exploitable intellectual property. Conversely, the taxpayer was not an employee of the hospital or an associated institute, notwithstanding that research grants were received by him from the institute. Accordingly, legal fees incurred by him when the institute terminated research grants were deductible.

Gagnon v. The Queen, 99 DTC 845 (TCC)

Bowman T.C.J. stated (at p. 848):

It was argued at some length that the income earned and expected to be earned by the appellants was income from property and that the range of expenses deductible in computing income from property is more restricted than in the case of income from a business. I know of no authority that would justify a more restrictive treatment of expenses relating to the earning of property income.

Splend'or Industries Ltd. v. The Queen, 99 DTC 560 (TCC)

The taxpayer was unable to deduct the cost of replacing the roof of premises that were rented to it because such repair was the responsibility of the landlord (its shareholder).

SPG International Ltée v. The Queen, 98 DTC 1093 (TCC)

The taxpayer, which was a Canadian manufacturer of tool boxes and metal lockers, established an American marketing subsidiary and decided that, during the start-up period, it would pay various expenses (such as trade convention reservation fees, and travelling expenses) directly rather than charge them to the subsidiary. In finding that such expenses were deductible by the taxpayer, Dussault T.C.J. noted that each American sale made by the subsidiary also represented a sale for the taxpayer (because the taxpayer was an exclusive supplier of the subsidiary), that the taxpayer made more profits on such sales than the subsidiary and that the taxpayer's decision to absorb such expenses was a perfectly legitimate business decision analogous with the sharing of expenses for advertising, marketing or promotion by a taxpayer with its distributors.

Robitaille v. The Queen, 97 DTC 346 (TCC)

Lamarre T.C.J. accepted the evidence of the taxpayer (a criminal lawyer) that he used his automobile 80% for business purposes (namely, visiting courthouses and police stations in order to find clients, and transporting a child to a babysitter).

C.I.R. (Hong Kong) v. Cosmotron Manufacturing Co. Ltd., [1997] B.T.C. 465 (P.C.)

After the taxpayer closed its only factory and ceased its business, it made redundancy payments to laid-off employees pursuant to a statutory formula.

In affirming a finding that s. 17(1)(b) of the Hong Kong Inland Revenue Ordinance, which prohibited the deduction of "any disbursements or expenses not being money expended for the purpose of producing such profits", did not prohibit the deduction of the redundancy payments, Lord Nolan stated (at p. 470):

The obligation to make them [the redundancy payments] was contingent, like many of the employer's other contractual or statutory obligations, but was nonetheless incurred as a necessary condition of retaining the services of the employees concerned.

In refusing to follow the decision in Godden v. A. Wilson's Stores (Holdings) Ltd. (1962), 40 T.C. 161 (CA), he noted that the taxpayer's argument -- that the severance payments were deductible because its obligation to make them arose from the terms upon which their employees had been engaged and had remained in employment -- had not been put to the Court of Appeal in that case.

Vodafone Cellular Ltd. v. Shaw, [1997] BTC 247 (C.A.)

deductible lump-sum cancellation of profit participation payment

The taxpayer, which provided management services to its two subsidiaries which, in turn, ran a cellular phone system and sold cellular telephones, agreed with an American cellular telephone company ("Millicom") to pay an annual fee equal to 10% of its consolidated pre-tax profits for 15 years in consideration for the supply to the taxpayer from time to time at its request with future know-how.

The Court reversed a finding of the Commissioners (which had been affirmed in the Court below) that a lump-sum payment made by the taxpayer for the cancellation of this agreement was not deductible because it was not wholly and exclusively expended for the purposes of its trade. Millett L.J. noted that if Millicom had not agreed to cancel the fee agreement, there would have been no basis on which the taxpayer could properly have required the subsidiaries to reimburse it for making available to then know-how which they had not asked for and did not need. Because the liability in question was a liability of the taxpayer alone, the cancellation of that liability was made exclusively to serve the purposes of its trade.

Port Colbourne Poultry Ltd. v. The Queen, 97 DTC 237 (TCC)

Rowe D.J. found that a fine that the taxpayer agreed to pay as a result in respect of a decision by one of its unsupervised employees to flush sludge that had been spilled on the ground into a nearby ditch, did not represent an amount incurred for the purpose of earning income after stating (at p. 241) that "there should have been a policy in place to allow for proper handling of such an incident which is not so rare as to not be reasonably foreseeable when dealing with 3,000 gallons of sludge per day and ultimate transport of that substance in the course of supply to consumers". He went on to find that, in any event, the fine would have been non-deductible on grounds of public policy, and noted that the Crown had allowed the deduction of associated legal fees.

Sunys Petroleum Inc. v. The Queen, 96 DTC 1759 (TCC)

Penalties payable by the taxpayer (which operated gasoline stations) as a result of its failure to remit federal sales and excise taxes on some of its sales were found to be deductible given that the principals of the business were surprised by the failure of the controller (an experienced chartered accountant) to pay such taxes. Bell T.C.J. stated (at pp. 1764-1765):

The acts of a servant of the company cannot constantly be monitored nor should they be in situations like those of the Appellant where a man with expertise was engaged to attend, among other things, to the very matters giving rise to the imposition of the penalty.

Ogden Funeral Homes Ltd. v. The Queen, 94 DTC 1405, [1994] 1 CTC 2564 (TCC)

An indirect shareholder of the taxpayer requested his son, the general manager of the taxpayer, to return from Australia to Canada five days prior to his scheduled return in order to handle certain difficulties which had arisen in the negotiations of the purchase of the Millcroft Inn located near Toronto. O'Connor T.C.J. accepted evidence that the return was required for valid business reasons, with the result that the cost of the ticket was deductible. (The terms of the ticket for the scheduled return did not permit a refund.)

Grunbaum v. The Queen, 94 DTC 1384, [1994] 1 CTC 2687 (TCC)

corporation's share of wedding reception expenses re business guests were deductible

Expenses incurred by the corporate taxpayer as a result of inviting business guests to a wedding reception held in honour of the daughter of a shareholder were found by Garon T.C.J. to have been incurred by it for the purpose of gaining or producing income from its business. The decision in Fingold v. MNR, 92 DTC 2011 was distinguished on the basis that in this case, the invitations to the business guests were sent through the corporate taxpayer and those guests were well aware that they were guests of the taxpayer company.

Barclays Mercantile Industrial Finance Ltd. v. Melluish, [1990] BTC 209 (Ch. D.)

In rejecting a finding of special commissioners that agreements for the licensing or other distribution of a film had not been entered into by a corporation in the course of its trading activities because the agreements, themselves, were not expected to produce profits, Vinelott J. stated (at p. 246):

That in my judgment is not sufficient by itself to found the conclusion that the distribution agreements were not entered into in the ordinary course of its business. It is not difficult to conceive of cases in which a trader may be very pleased to enter into a long-term contract which covers or nearly covers its overhead costs leaving him to make a profit if he can sell the same product to others at a price above the marginal cost of production.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) 240
Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1) main purpose was to make a profit, not take deduction 264
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(17) no "lease" where failure to provide exclusive possession 75

RTZ Oil and Gas Ltd. v. Elliss, [1987] BTC 359 (Ch. D.)

A consortium of oil companies including the taxpayer installed a manifold, loading lines and buoy over an off-shore oil field under a license that required their removal when exploitation of the field was completed. On this basis, Vinelott J. accepted the Crown's concession (p. 392):

that given that the obligation to remove the [equipment] was imposed by the license and that acceptance of it was in substance part of the consideration given by the consortium for the right to win oil from the North Sea, the expenditure when incurred will be expenditure wholly and exclusively incurred for the purpose of the company's trade even if on the abandonment of the Argyll Field the company's trade comes to an end.

Harrowston Corporation v. The Queen, 93 DTC 995, [1993] 2 CTC 2247 (TCC), aff'd 96 DTC 6544 (FCA)

A debt to the taxpayer from a non-resident corporation, which arose because of the taxpayer's inadvertent failure to withhold from interest payments made to the non-resident and which the taxpayer was unable to collect, was not deductible and did not relate to a deductible expenditure.

Ginn v. MNR, 92 DTC 2233, [1992] 2 CTC 2579 (TCC)

The taxpayer was unsuccessful in his submission that the sum of $159,347 which he was ordered by the Supreme Court of British Columbia to pay as damages for fraudulently inducing clients to purchase condominiums from him and his relatives at a substantial profit, were amounts that arose "as a result of matters that were incidental to the practice of the taxpayer's profession". Accordingly, such amount was not deductible on income account.

United Color and Chemicals Ltd. v. MNR, 92 DTC 1259, [1992] 1 CTC 2321 (TCC)

Kickback payments made by the taxpayer to purchasing agents employed by its customers were made for the purpose of generating sales and therefore were deductible.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 50

ELB Productions Ltd. v. MNR, 91 DTC 1466, [1991] 2 CTC 2661 (TCC)

Before finding that an expenditure by the taxpayer was non-deductible on other grounds, Bowman J. stated (p. 1468):

Risky enterprises sometimes succeed and become taxable. Where they fail it would be unconscionable for the entrepreneur to be penalized because the Minister, basing his decision on the wisdom of hindsight, concludes that the project was not commercially viable.

Cassidy's Ltd. v. MNR, 89 DTC 686 (TCC)

Losses suffered by a corporation, resulting from a senior vice-president fraudulently having cheques issued to him and charged to cost of goods, were deductible. "[I]t is a risk in operating a business that dishonest people may be employed."

Heather v. P-E Consulting Group Ltd. (1972), 48 T.C. 293 (CA)

A management consulting company provided money on an annual basis to a trust fund which purchased the company's own shares and shares of a holding company to be held for the benefit of the professional staff. These payments were deductible because the company's objective was to obtain the goodwill of its staff and to ensure that control of the company would remain in their hands (their independence being important to the welfare of the company's trade).

Horton Steel Works Ltd. v. MNR, 72 DTC 1123, [1972] CTC 2147 (T.R.B.)

The taxpayer was reassessed for unpaid federal sales taxes plus a penalty of 8% per annum. In finding that the penalty was non-deductible, Frost FCA stated:

As the business of the appellant could have been carried on without any infraction of the law, the penalty is not an outlay made for the purpose of producing income ...

Harrods (Buenos Aires) Ltd. v. Taylor-Gooby (1964), 41 T.C. 450 (CA)

capital tax payment was not dependent on whether profits were generated

The taxpayer was resident in the United Kingdom but carried on the business of a large retail store in Buenos Aires. The taxpayer was liable in Argentina to a tax known as the "substitute tax", which was exigible on 1% of the capital of companies which carried on business in Argentina through a permanent establishment. In finding that the payment of this tax met the requirement for deduction under the Income Tax Act, 1952 (U.K.) that it be "money wholly and exclusively laid out or expanded for the purposes of [its] trade", Lord Justice Diplock stated:

Liability to the tax does not depend upon whether profits are made or not. It is a payment which the company is compelled to make if it has a business establishment in Argentina at all, and it must have a business establishment if it is to carry on its trade. I can see no relevant difference between this tax and rates upon its business premises.

The 1% capital tax accordingly was deductible in computing the taxpayer's income for English income tax purposes.

Morgan v. Tate & Lyle Ltd., [1955] A.C. 21 (H.L.)

Before finding that the taxpayer was permitted to deduct expenses which it incurred in opposing a nationalization of its business that would have entailed a successor entity acquiring its assets in continuing to carry on its trade, Lord Reid stated (p. 57):

It is not difficult to suppose a case where a trader is shortly to be succeeded in his trade by another person and where he spends money the benefit of which will accrue in whole or in part to his successor. It could not be said that for that reason the money was not wholly and exclusively laid out for the purposes of the trade.

Canadian Fruit Distributors Ltd. v. MNR, 54 DTC 1145, [1954] CTC 284 (Ex. Ct.)

The taxpayer, which was the subsidiary of a non-profit fruit growers' non-share corporation, and whose business involved the marketing of fruit products of its parent and, to a lesser extent, of third parties, agreed that for each fiscal year it would pay to its parent the excess of the total receipts of its business over its total operating expenses. Thorson P. found that this arrangement was effective to reduce the taxpayer's income to nil.

James Snook & Co., Ltd. v. Blasdale (1952), 33 T.C. 244 (CA)

The agreement for the sale of the shares in the capital of the taxpayer provided that the purchaser would cause the taxpayer to pay compensation for loss of office to directors of the taxpayer. The finding of the Commissioners that such compensation payments were not money "wholly and exclusively expended for the purposes of the trade" of the taxpayer, was not reversed.

Newsom v. Robertson (1952), 33 T.C. 452 (CA)

travel between home and chambers was personal

A barrister had chambers in London where he carried on his practice but resided at Whipsnade where he maintained a library and worked on professional matters during the evenings and weekends in term time, and throughout the weekdays as well during the long vacation. He unsuccessfully claimed expenses in respect of travelling between his residence and his chambers both in term time and during the vacation. Somervell L.J. noted (at p. 462):

that Whipsnade as a locality has nothing to do with Mr. Newsom's practice ... If he had found a house that suited him in Hertfordshire or Oxfordshire, everything would have gone on in precisely the same way.

Denning L.J. stated (at p. 464) that the taxpayer's "home was no more a base of operations than was the train by which he travelled to and fro." [C.R: 18(1)(h)]

Fairrie v. Hall (1947), 28 T.C. 200 (K.B.D.)

Damages which a sugar broker paid as a result of maliciously libelling a business rival were non-deductible notwithstanding that successully injuring the reputation of the rival might have increased his profits. Macnaghten J. stated (p. 206):

The loss fell upon the Appellant in this case in the character of a calumniator of a rival sugar broker. It was only remotely connected with his trade as a sugar broker.

Bassett Enterprises, Ltd. v. Petty (1938), 21 T.C. 730 (K.B.D.)

The purchaser of the shares of a corporation undertook as part of the arrangement that the acquired corporation would pay for the cancellation of service agreements with the manager and members of the family group that previously had controlled the corporation. Lawrence J. stated that it followed from this "that the Company's payment was not wholly and exclusively laid out for the purposes of the Company's business, because it was really laid out on account of the obligation which had been undertaken by [the purchaser]" (p. 738).

British Sugar Manufacturers, Ltd. v. Harris (1937), 21 TC 528 (C.A.)

The taxpayer agreed to pay 20% of its net profits to other corporations in consideration for their provision of managerial services and advice on technical matters. In finding the payments by the taxpayer to be deductible as "money wholly and exclusively laid out or expended for the purposes of the trade", Sir Greene, M.R. noted that although where a person purchases a share of profits, a payment of profits to that person will not be deductible, here "it is not cash that passes in exchange for these profits; it is services, and the badge of such a contract is remuneration for services ..." (p. 546).

Tata Hydro-Electric Agencies, Bombay v. Income Tax Commissioner, [1937] A.C. 685 (P.C.)

profit participation was incurred to acquire right to earn profits rather than in course of earning profits

In acquiring the business of managing hydro-electric companies from a predecessor corporation, the taxpayer assumed the obligation to pay a commission equal to 25% of the management fees earned from the hydro-electric companies. The commission payments did not constitute "any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains" for purposes of s. 10(2) of the Indian Income-tax Act because "they did not arise out of any transactions in the conduct of their business" and:

The obligation to make these payments was undertaken by the appellants in consideration of their acquisition of the right and opportunity to earn profits, that is, of the right to conduct the business, and not for the purpose of producing profits in the conduct of the business.

The Herald and Weekly Times Ltd. v. Federal Commissioner of Taxation (1932), 2 A.T.D. 169 (H.C. of A.)

In finding that damages paid by an Australian newspaper for libel actions were deductible by it, the Court stated (p. 171):

None of the libels or supposed libels was published with any other object in view than the sale of the newspaper. The liability to damages was incurred, or the claim was encountered, because of the very act of publishing the newspaper. The thing which produced the assessable income was the thing which exposed the taxpayer to the liability or claim discharged by the expenditure.

B.W. Noble, Ltd. v. Mitchell (1927), 11 TC 372 (CA)

Although the taxpayer, which was an insurance and reinsurance broker, had cause to dismiss one of its directors, and to require him to transfer his valuable shares to the other directors for their nominal par value, the taxpayer did not dismiss him out of a concern that the matter might become public and adversely affect its reputation. A substantial sum (payable over five years) that was made in order to secure the retirement of the director was found to have been incurred "wholly and exclusively ... for the purposes of the trade" within the meaning of Rule 3(a) given that the taxpayer agreed to the sum in order to maintain its profitable trade.

British Insulated and Halsby Cables, Ltd. v. Atherton, [1926] A.C. 205 (HL)

Before going on to find that a substantial lump sum contribution by the taxpayer to an employee pension plan was a non-deductible expenditure, Viscount Cave found that its deduction was not prohibited by the prohibition against the deduction of expenses not "wholly and exclusively laid out or expended for the purposes of such trade" (p. 212):

A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade ... [T]he payment was made for the sound commercial purpose of enabling the company to retain the services of existing and future members of their staff and of increasing the efficiency of the staff... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense pension fund settlement was one-time expenditure for enduring benefit 174

C.I.R. v. Alexander Von Glehn & Co. Ltd. (1920), 12 T.C. 233 (CA)

The taxpayer was unable to deduct penalties which it agreed to pay to the Attorney-General as a result of being unable to establish that goods which it exported from Britain during the First World War to neutral countries would not be used by the enemy, and also was unable to deduct related legal fees. Scrutton, L.J. stated (p. 244):

Were these fines made or paid for the purpose of earning the profits? The answer seems to me obvious, that they were not, they were unfortunate incidents which followed after the profits had been earned.

Administrative Policy

13 August 2020 External T.I. 2019-0802891E5 F - Unclaimed RRSP Benefits

fees incurred as a consequence of receiving unclaimed property (which was taxable under s. 146(8)) were non-deductible

The estate of the deceased annuitant of an RRSP was fully settled without the executor (his surviving wife and the sole beneficiary) being aware of the RRSP. Later, the RRSP became unclaimed property and the Quebec Commission for dealing with unclaimed property (the “DPBNR”) instructed the RRSP issuer to liquidate the RRSP and remit the proceeds in cash to it. In a subsequent taxation year, the surviving spouse claimed and received the amount from the DPBNR as the sole estate beneficiary. The amount received by her was net of fees that were imposed by the DPBNR, which were treated under the unclaimed property legislation and regulations (the “UPA and RUPA”) as an obligation of the beneficiary. After finding that there was constructive receipt by her of the portion of the amount against which such fees had been levied, and that the amount received by her as so grossed-up was taxable to her under the surrogatum principle, CRA stated:

[A]s these fees were incurred for the administration and liquidation of the assets under administration, they do not constitute an expense incurred for the purpose of earning income and are therefore generally not deductible by the beneficial owner.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Benefit - Paragraph (a) benefit includible in deceased annuitant’s return was not subject to "benefit"-(a) exclusion because it was not reported 312
Tax Topics - Income Tax Act - Section 146 - Subsection 146(8) s. 146(8) benefit paid to the taxpayer’s administrator was not includible in her income until the year she was identified and received the amount 369
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(c) tax imposed on RRSP under s. 146(4)(c) where RRSP issuer unaware of annuitant’s death 187
Tax Topics - General Concepts - Payment & Receipt constructive receipt of amount deducted on account of fees that were the recipient’s obligation 280
Tax Topics - Income Tax Act - Section 9 - Timing receipt of income by an administrator was not income of the beneficial owner until the year she was identified 350

S4-F14-C1 - Artists and Writers

Examples of deductible expenses of an artist such as specialized wardrobe, lessons and PD and filming and recording costs for performance (but not for study purposes)

1.38 For artists and writers, examples of deductible expenses could include:

  1. insurance premiums on musical instruments and equipment;
  2. the cost of repairs to instruments and equipment, including the cost of new reeds, strings, pads, and accessories;
  3. legal and accounting fees;
  4. union dues and professional membership dues;
  5. an agent's or mandatary's commission;
  6. remuneration paid to a substitute or assistant;
  7. the cost of makeup and hair styling required for public appearances;
  8. publicity expenses consisting generally of the cost of having photographs taken and sent with a descriptive commentary to producers, presenters, and the media, and including the cost of advertisements in publications;
  9. transportation expenses related to an engagement (including an audition) in a situation where:
    1. the engagement is out of town, in which case, board and lodging would also be allowed (see Interpretation Bulletin IT‑518R, Food, Beverages and Entertainment Expenses),
    2. a large instrument or equipment must be carried to the engagement,
    3. dress clothes must be worn from a residence to the place of engagement, or
    4. one engagement follows another so closely in time that a car or taxi is the only means by which the engagement can be fulfilled;
  10. the cost of filming or recording performances where required for their preparation or presentation;
  11. telephone and cell phone expenses, including an applicable portion of the cost of a telephone in a residence where the number is listed as a business phone;
  12. capital cost allowance (CCA) (Class 8) on instruments, sheet music, scores, scripts, transcriptions, arrangements, and equipment;
  13. CCA (Class 8) on the cost of wardrobe items acquired by an artist specifically to earn self-employment income and that is used solely for performances, when the acquisition of such items gives rise to an enduring benefit to the artist …;
  14. the cost of wardrobe items used solely for performances when there is no enduring benefit to an artist;
  15. the cost of repairs, alterations, and cleaning of clothes for the purpose of their use in self-employment, or required as a result of such use;
  16. costs to maintain that part of an artist or writer's residence used for business purposes or to rent a studio;
  17. the cost of music, acting, or other lessons incurred for a particular role or part or for the purpose of general self-improvement in an individual's artistic field;
  18. the cost of industry-related periodicals;
  19. the cost of equipment rental;
  20. art shipping expenses; and
  21. the cost of professional development activities and specialized training.

1.39 The following deductions are not allowable because they are either capital expenditures or they are personal or living expenses:

  • the cost of musical instruments or other equipment necessary for the artist's performance (however, CCA may be deducted …);
  • the cost of sheet music, scores, scripts, transcriptions, arrangements, other recordings, or "air checks" (again, however, see the comments in ¶1.38(l) regarding CCA);
  • filming and recording costs incurred specifically for the purpose of study and general self-improvement (however, if the preparation or presentation of a particular performance requires that it be filmed or recorded, see ¶1.38(j)).

1 August 2019 Internal T.I. 2018-0781951I7 - Employee benefit plan and recharge agreement

recharge payments made for employees participating in parent-administered PSP not deductible to extent they were employed by affiliates during vesting period

Employees of a Canadian subsidiary participated in a performance share plan (“PSP”) under which the non-resident public parent (Parentco) contributes funds to a non-resident trust, which purchases shares of Parentco on the open market, and distributes shares (within approximately three years) to the group employees as the shares vest in accordance with the performance conditions of the PSP. After finding that the arrangement was an employee benefit plan, Headquarters concluded that payments made by Canco to Parentco under a “recharge” agreement, equal to the fair market value of shares that were distributed to the Canco employees at the time the previously awarded shares had vested, were not deductible under s. 32.1. However, in finding that such payments likely were generally deductible under s. 9, the Directorate stated:

T]he reimbursement payments are in respect of employee compensation for services rendered to Canco as part of its ongoing business activities and are required to be made pursuant to the recharge agreement. …

[A]mounts invoiced by Parentco to a particular entity are based on the employee’s employer as at the grant date. Audit may wish consider whether an adjustment to the amount deductible by Canco is warranted in the event that one or more of Canco’s employees changed employers within the Parentco group during the grant-to-vest period resulting in the PSP awards not being fully attributable to services rendered in connection with Canco’s business.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) no s. 7(3)(b) prohibition where at employer’s option to settle PSPs in cash or in shares 250
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(a) s. 7 rules do not apply to shares purchased through a trust 180
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Employee Benefit Plan custodial PSP arrangement was an EBP 190
Tax Topics - Income Tax Act - Section 32.1 - Subsection 32.1(1) payments made by Canco to parent for the value of parent shares distributed by parent-funded EBP to Canco employees were not deductible under s. 32.1 269
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) request for deduction not to be allowed if based on case decision rather than error 281

27 June 2018 External T.I. 2018-0742881E5 F - Royalties under Canada Petroleum Resources Act

Canadian Petroleum royalties generally deductible

Respecting whether royalties paid under the Canada Petroleum Resources Act ("CPRA") would be considered a tax on income or profit and, therefore, not be deductible in computing business income under paragraph 18(1)(a), CRA first noted that, in a month preceding the month of payout, the royalties were calculated as percentages of the gross revenue from petroleum and, thereafter, as the greater of 30% of the net revenues from petroleum, and 5% of the gross revenues from petroleum, CRA then noted that following the repeal of s. 18(1)(m), resource royalties and mining taxes have been “deductible in the computation of income, subject to the usual restrictions on the deduction of expenses for tax purposes” and then, after referencing (and misquoting) the test in s. 18(1)(a), CRA stated:

[T]he amount of royalties calculated by virtue of the CPRA and its Regulations is not subject to that restriction because, inter alia, if it were not paid, a taxpayer could lose the opportunity to carry on its business and thereby earn income.

Based on the comments above, an amount paid under the CPRA and its Regulations constitutes a royalty that is generally deductible in computing the business income of a taxpayer.

26 March 2015 Internal T.I. 2013-0503031I7 F - Existence d’une source de revenu

criteria for determining whether a home is a principal place of business

After finding that the taxpayer’s expenses were likely non-deductible as his activities likely were a hobby rather than a business, CRA went on to comment on the deductibility of his travel expenses in the event that (contrary to this conclusion) it was determined that he was carrying on a business, stating:

[T]he use of a car for personal purposes generally includes travelling between the individual's home and place of business unless it is established that the home is the principal place of business.

...According to case law, the principal place of business of a taxpayer represents where the activities necessary for the carrying on of the business take place, including calling customers and suppliers, issuing invoices, maintaining payroll and other books and records, communicating with the authorities to obtain permits, preparing tax returns, collecting receivables, handling complaints, developing business plans, preparing the financial statements and engaging with accountants and lawyers.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit individual’s sideline activity not a business so that revenues exempt 100

4 March 2015 External T.I. 2014-0562151E5 F - Frais de psychothérapie – dépense d'entreprise

“but for” test applied to determine deductibility/potentially creditable item can instead be expense

In the course of a business of offering psychology services, a psychologist incurs psychotherapy fees in order to reduce such therapist's personal reaction to the sessions conducted with clients. Are such fees deductible as a business expense? CRA responded:

[T]o the extent that, had it not been for your work, you would not have required such consultations, we would be of the view that the psychotherapy expenses resulting from the carrying on of your business could be deductible in computing your income.

The fact that psychotherapy fees could give rise to a credit under the Act does not preclude their deduction in the computation of income from your business. However…[under] subsection 248(28)… it would not be possible to deduct psychotherapy expenses under section 9 and claim a medical expense credit for the same amount under section 118.2. Finally, any personal portion of the psychotherapy expenses that will not be deducted in computing income from a business can give rise to a medical expense tax credit provided that all of the requirements under section 118.2 are met.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) potential choice between claiming therapy expense and credit 115

9 October 2015 APFF Roundtable Q. 10, 2015-0595671C6 F - Question 10 - Table Ronde APFF 2015

generally should be reimbursement for expenses incurred for affiliate

When CRA disallows part of the deduction by a corporation of the management fee charged to it by another (presumably affiliated) corporation ("Managementco"), it generally will accept a downward adjustment to the revenues of Managementco if Managementco reimburses the other corporation for the denied amount, Managementco’s relevant taxation year is not statute-barred and it sends a written request to CRA in which it "demonstrate that it has reimbursed, or committed to reimburse, a sum equivalent to that whose deductibility was denied." However, CRA will not do this "if there is abuse or a deliberate overstatement of the fees." CRA also stated:

Furthermore, a given corporation generally has no right to deduct an expense for a business of another taxpayer which is paid by it if it does not receive any compensation for such expense. In order to avoid a type of double taxation in such a case, the given corporation would invoice the other taxpayer for the disbursement and the other taxpayer would pay such amount to the given corporation. Thus, the other taxpayer could deduct the amount of the invoice if it was an expense incurred for its business provided it was reasonable and complied with the other provisions of the Income Tax Act in light of the relevant facts respecting the situation of the taxpayer in question.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date price adjustment clause not required to reduce income for an excessive management fee 101

24 March 2015 External T.I. 2012-0470991E5 F - Mutual fund trust

s. 39(4) presumption establishing expense non-deductibility

After noting that in McNeil, 2005 DTC 328, 2005 TCC 124 at para. 6, the Tax Court had indicated that a s. 39(4) election also determined the character of gains for purpose of determining the deductibility of related expenses, CRA stated that this decision "could be considered by the CRA in passing on the applicability of the presumptions in subsection 39(4) for the purposes of paragraph 18(1)(a)."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(21) flow-through to unitholder of capital gain designated by MFT 183
Tax Topics - Income Tax Act - Section 132 - Subsection 132(6) day trading included in investment undertaking 62
Tax Topics - Income Tax Act - Section 39 - Subsection 39(5) - Paragraph 39(5)(a) election can be made by leveraged day-trading MFT 183
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Shares capital v. income character determined at trust level 94

27 June 2014 External T.I. 2013-0500701E5 F - Déductibilité de certaines dépenses

distinction between principal and secondary reason for incurring expense

In the course of a general discussion as to deductibility of expenses by a family corporation on redacted facts, CRA stated:

In determining the purpose of an expense, it is accordingly necessary to examine the principal reason for which the taxpayer incurred the expense. There is an important distinction between expenses incurred primarily for personal gain and expenses incurred primarily for the purpose of earning income, but for which personal items are merely ancillary or secondary. It should be noted that the fact that an expense is considered to be a part of personal or living expenses does not in any way affect the qualification of the source of income to which the taxpayer attempts to link the expenditure.

27 May 2014 Internal T.I. 2014-0521631I7 F - Déductibilité d'un alcoomètre

not necessary to show that expenditure generated income - and potential deduction where 20% personal use

Can an employer deduct expenses related to the installation and monthly recalibration of an alcohol interlock in the vehicle of one of its employees? CRA responded:

[I]t is not necessary to show that income actually resulted from the particular outlay or expenditure itself. It is sufficient that the outlay or expense was a part of the income-earning process. In light of the facts that you have described, the employee must use his vehicle in the course of his duties for his employer's business. In our view, it is possible that the expenses associated with the vehicle are part of the employer's earnings process and, consequently, they could be incurred for the purpose of earning business income by the employer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) full personal element if the expense would have otherwise been paid by the employee 100

30 October 2013 External T.I. 2013-0500831E5 F - Frais de bureau à domicile

to deduct applicable home expenses, individual shareholder must charge rent to corporation using home office

CRA indicated that where a corporation is using an office in its individual shareholder’s home, “for the shareholder to be able to deduct expenses for the room in the shareholder’s house used by the corporation, the corporation must pay rent.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 8 - Subsection 8(13) inapplicable where corporation uses its individual shareholder's office 71
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(c) incidental rental use of home does not result in part disposition 143

2015 Ruling 2013-0513411R3 F - Société de professionnels

fees paid by professional practice to family management company

Current structure. Mr. A, who carries on a professional practice and employs various individuals directly, holds Class E voting discretionary dividend shares, is wife and children hold Class F non-voting discretionary dividend shares and a family trust holds Class B non-voting common shares of the Corporation.

Proposed transactions.

The Corporation XX will enter into employment contracts with the employees (whereupon they will cease to be employees of Mr. A) and an Agreement will be entered into between the Corporation XX and the current employees which will contemplate the payment of Fees by Mr. A to the Corporation XX calculated based on the hours of work of each of the employees of the Corporation. Mr. A will deduct the Fees in computing his income in and the Corporation XX will add them in the computation of its income. The accumulated profits of Corporation XX will be periodically paid as dividends to the family trust.


The purpose of the proposed transactions is to reduce the profits of XX, which otherwise would be included in the income of Mr. A and be subject to the individual tax rate, in favour of Corporation XX. Such profits will instead be subject to corporate tax. Furthermore, the proposed transactions will permit a sharing of income derived from XX among the shareholders of Corporation XX.

  1. For the purposes of section 9, the deduction of the Fees will not be denied as current expenses in the computation of the income from XX of Mr. A, for the taxation years during which they are incurred, as a consequence of and by reason of the proposed transactions, subject to any application of sections 18, 20 and 67 of the Act.
  2. With the Fees being included in the income of the Corporation XX, the deduction of the salary of each XX established by virtue of the contract of employment will not be denied as a current expense in the computation of the income of Corporation XX for the taxation years during which it is incurred, as a consequence of and by reason of the proposed transactions subject to the application of section 67 and subsection 78(4) of the Act.

The summary states:

Since the proposed structure does not contravene the laws and regulations governing the practice of XX in Quebec, the deduction of fees will not be denied as a current expense in computing the XX business income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Related Companies fees paid by professional practice to family management company 123

20 November 2012 External T.I. 2012-0466891E5 F - Non-Cash Gifts and Non-Cash Awards

gifts and awards to employee are deductible even if within $500 tax-free amount

Are gifts and awards to employees deductible to the employer? CRA responded:

The Agency's policy is to allow an employer to give an unlimited number of non-cash gifts and awards with a combined total value (including taxes) of $500 or less annually free of tax.

We are of the view that the non-monetary gifts or awards referred to above are generally expenses incurred to earn income. Generally, these expenses can be deducted in computing the income a taxpayer earns from a business.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) $500 tax-free non-cash gift amount calculated including sales tax 54

15 November 2012 Internal T.I. 2012-0459321I7 F - Biens locatifs - frais de déplacement

deductibility of travel expenses to manage rental properties partly turns on whether single or multiple locations

Can a taxpayer owning two adjacent rental duplexes generating property income deduct the travel expenses incurred to travel from the taxpayer’s principal residence to those rental properties? CRA stated that “we do not consider that the taxpayer complies with the requirement that the two rental properties be located in two different locations from where the taxpayer's principal residence is located.” Consequently, the taxpayer could access only the following administrative policy:

Where a taxpayer owns only one rental property, the taxpayer may deduct motor vehicle expenses if the following conditions are satisfied:

  • The taxpayer receives income from a single rental property located in the area where the taxpayer lives;
  • The taxpayer personally does part, or all, of the necessary repairs and maintenance on the rental property;
  • The taxpayer incurred motor vehicle expenses to transport tools and materials to the rental property.

…[S]uch a taxpayer cannot deduct the motor vehicle expenses incurred to collect rents.

Respecting the alternative rental-property situation, CRA stated:

Where a taxpayer owns two rental properties, it is possible for the taxpayer to deduct the expenses where incurred to:

  • collect rents;
  • supervise repairs;
  • manage the properties.
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(h) notwithstanding the s. 18(1)(h) postamable limitation to business income, there is a circumscribed deduction for travel to and from single rental property 206

18 September 2012 External T.I. 2012-0442581E5 F - Fiducie au profit d'un athlète amateur

expenses of athlete with athlete trust

A world-class amateur athlete (the “Athlete”) deposits qualifying performance income (as defined in s. 143.1(1)) to an athlete trust (the "Trust"). Expenses incurred personally by the Athlete include fees for attending events for which the Athlete receives fees and expenses for the creation of a website for the purpose of promoting the Athlete as well as the Athlete’s sponsors and also with the objective of recruiting new sponsors. What is the tax treatment of such expenses? CRA responded:

[T]he expenses incurred by the Athlete during a taxation year to earn performance income, as that expression is defined in subsection 143.1(1), will be deductible against amounts that are distributed to the Athlete by the trust during that taxation year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 143.1 - Subsection 143.1(2) amounts distributed from athlete trust were business income 123
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit tests for source of business income for amateur athlete 149

S2-F1-C1 - Health and Welfare Trusts

Employer contributions required

1.20 An employer is required to make contributions to a health and welfare trust to fund employee health and welfare benefits. Employer contributions cannot be made on a voluntary or gratuitous basis and must be enforceable by the trustee... .

Fund surplus

1.21 Employer contributions to a health and welfare trust must not exceed the amount required to provide health and welfare benefits to employees. ...

Deductibility of contributions

1.26 ...To the extent that they are reasonable and laid out to earn income from business or property, contributions paid or payable to a health and welfare trust are generally deductible in the tax year in which the legal obligation to make the contributions arose...[as] confirmed by...Labow...2011 FCA 305... .

1.29 Employer contributions that are not deducted in a year...can generally be deducted in a subsequent year when the health and welfare trust uses the contributions to provide health and welfare benefits to employees (for example, premiums paid or payable by the trust to acquire insurance coverage for that subsequent year, or to fund health and welfare benefits paid or payable in that subsequent year).

Loss of status as a health and welfare trust

1.30 After a trust loses its status as a health and welfare trust, any contributions made to the trust will be treated as capital contributions. These amounts will not be deductible by the employer pursuant to paragraph 18(1)(b)... .

Trust income subject to tax

1.46 To the extent of its gross trust income, a health and welfare trust may deduct the following...:...

(c) expenses related to the normal operation of the trust, including expenses incurred in the collection of and accounting for contributions to the trust, in reviewing and acquiring insurance and other benefit plans, and fees (for example, administrative services only fees) paid or payable to a management or insurance company to administer the trust, except to the extent that such expenses are expressly not allowed or otherwise restricted under the Act or the Regulations; and

(d) subject to ¶1.47 and 1.48, premiums and benefits paid or payable for the current year.

Benefits paid from insurance policy proceeds

1.47 Benefits that are paid or payable out of insurance policy proceeds received by the health and welfare trust are not deductible by the trust under ¶1.46(d).

Benefits paid out of employer contributions

1.48 At the discretion of the trustees, premiums and benefits paid or payable by the health and welfare trust that would not otherwise be taxable to the employee under section 6 may be treated as having been paid out of prior years' funds or current year's employer contributions, to the extent that they are available. Such premiums and benefits are not deductible by the trust under ¶1.46(d).

S4-F2-C1 - Deductibility of Fines and Penalties

1.12 ...[A] fine or penalty incurred in relation to a transaction that is outside the scope of a taxpayer's normal business activities should not be included in the computation of profit from that business for purposes of subsection 9(1). ...

1.13 However, in determining whether profit is correctly computed for purposes of subsection 9(1), the Federal Court of Appeal clarified in Canadian Imperial Bank of Commerce that questions relating to the morality of a taxpayer's conduct will not be relevant.

1.16 Based largely on case law, the CRA will not consider the following factors to be relevant in determining whether a fine or penalty was incurred by a taxpayer for the purpose of gaining or producing income from the business or property:

  • whether the taxpayer attempted to prevent the act or omission that gave rise to the fine or penalty;
  • whether the taxpayer's income-earning purpose was achieved through the act or omission that gave rise to the fine or penalty;
  • whether the fine or penalty was avoidable;
  • whether it would be contrary to public policy to allow the taxpayer to deduct the fine or penalty in the circumstances; or
  • whether the taxpayer's conduct that gave rise to the fine or penalty could be considered egregious or repulsive.

Provincial income tax


Paragraph 18(1)(t) does not prohibit the deduction of provincial income tax. However, provincial income tax is not an expense made or incurred by a taxpayer for the purpose of gaining or producing income from a business or property and is therefore precluded from deduction by paragraph 18(1)(a). This position is consistent with the Exchequer Court of Canada's decision in Clinton W. Roenisch v. MNR , [1931] Ex. C.R. 1, 1 DTC 199….

Foreign income or profits tax

Paragraph 18(1)(t) does not prohibit a deduction for income or profits tax paid or payable to a foreign jurisdiction. However, a foreign income or profits tax is not an expense made or incurred by a taxpayer for the purpose of gaining or producing income from a business or property and is therefore precluded from deduction by paragraph 18(1)(a). This position is consistent with the Exchequer Court of Canada's decision in Quemont Mining Corporation v. MNR , [1966] CTC 570, 66 DTC 5376.


An exception to the general limitation in paragraph 18(1)(a) applies to the deduction of certain foreign taxes under subsections 20(11), (12) and (12.1).

S3-F9-C1 - Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime

repayment of embezzlement/losses from theft

Repayment of stolen property

1.30 Gains from theft or embezzlement as well as cash or property received as a result of extortion, blackmail, bribery, or other similar acts are income from a source… .

1.32 It is the CRA's practice that when amounts that were added to a taxpayer's income under ¶1.30 are repaid, there will normally be a deduction allowed in respect of such repaid amounts for the tax year in which the repayments are made. This will be the case unless the taxpayer was a major shareholder or senior official of the injured party at the time of the theft or other act to which these comments apply.

Losses from theft

Thefts by strangers

1.34 Losses through theft by strangers are an inherent risk for most businesses. Accordingly, losses of trading assets from these causes in circumstances where the loss is reasonably incidental to the income-earning activities of the business are normally deductible in computing income from a business.

Thefts by partners, proprietors and shareholders

1.36 Losses through theft or embezzlement by proprietors, partners, or significant shareholders of the business are not normally deductible. In most cases, such losses are more properly considered withdrawals of capital or are sustained outside the normal income-earning activities of the business. On the other hand, in the case of Parkland Operations Ltd. v. The Queen, [1991] 1 CTC 23, 90 DTC 6676 (F.C.T.D.), a corporation was permitted to deduct amounts embezzled from its operating line of credit by two signing officers whose personal holding corporations were minority shareholders in the corporation. The court in that case found that the funds were not taken by the individuals in their capacity as shareholders or by exercising any overriding control, but rather while dealing wrongfully with the operating funds in the normal course of the business.

Thefts by senior employees

1.37 The treatment of losses resulting from theft or embezzlement by senior employees and managers depends upon the circumstances of each case. If, as is frequently the case, such a loss is not reasonably incidental to the normal income-earning activities, considerations in determining deductibility in cases involving senior employees include:

  • the extent of the senior employee's authority and control. Note that if the individual was in a position to act as if he or she were an owner of the business, the loss is unlikely to meet the requirements for deductibility;
  • how and at what stage in the income-earning process the funds or property were stolen or embezzled. Note that a loss or diversion of profits which have already been earned by the business is generally not a loss which is incidental to the income-earning activities of the business; and
  • the extent of any shareholdings in the business by the senior employee. Note that an amount which is misappropriated by an individual in his or her capacity as a shareholder is not deductible (see ¶1.36).

26 February 2014 External T.I. 2013-0510921E5 F - Remboursement de frais médicaux à un employé

no need to demonstrate income production

In providing a general response to the question as to whether in computing an employer could deduct, in computing its business income, amounts paid to an employee as a reimbursement for medical expenses incurred by the employee prior to implementing a health service plan, CRA stated (TaxInterpretations translation):

Under the expression "... for the purpose of gaining or producing ..." in paragraph 18(1)(a), it is not necessary to show that income actually resulted from the particular outlay or expenditure itself. It is sufficient that the outlay or expense was a part of the income-earning process.

8 October 2013 External T.I. 2011-0428931E5 F - Assurance-invalidité

non-deductibility of disability insurance premiums

As a condition to making a loan to finance the purchase by a corporation of a building, a financial institution required that the corporation take out disability insurance on its two individual shareholders (the "Loan Insurance"). In the event of disability of a shareholders, the insurance company would pay the benefits for the account of the corporation, in order that it could service the loan. The two shareholders also had credit cards used only for the business purposes of the corporation, and took out credit card disability insurance (the "Credit Card Insurance") which entitled them to a fixed monthly benefit in the event of disability.


Would amounts paid under either policy be included in the income of the disabled shareholder or of the corporation; and would the premiums payable by the corporation under the two policies be deductible in computing its income?

Credit Card Insurance.

After noting that IT-223 (archived), para. 2 still represented CRA policy, CRA stated (TaxInterpretations translation):

[T]he Credit Card Insurance accords the right to a fixed monthly amount for XXXXXXXXXX years irrespective of the amount of the actual overhead expenses incurred or paid by the corporation during the period of disability of the shareholder. Accordingly, we do not believe that the criteria stated in the Bulletin are complied with. The premiums paid by the corporation respecting the Credit Card Insurance thus are not deductible as business expenses.

Loan Insurance

CRA stated that the Loan Insurance:

was intended ... to provide protection in the case of loss of income when one of the two shareholders is disabled. In our view, this policy was not acquired with a view to earning income from the business. Consequently, premiums paid in respect of the Loan Insurance are not deductible and the benefits received are not taxable to either the corporation or the shareholder. provides protection in the case of a loss of income where one of the two shareholders is diasabled. … [T]his policy was not acquired with a view to earning income from the business. Consequently the premiums…are not deductible and the benefits received are not taxable to either the corporation or the shareholder.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business proceeds received as a result of business credit card insurance were not income 336

5 June 2012 External T.I. 2012-0437831E5 - Professional Fees

After stating that "any legal or accounting fees...relating to the filing of a voluntary disclosure are not deductible by the taxpayer under subsection 60(o)," CRA went on to state:

In addition, reasonable fees and costs incurred to obtain advice and assistance in preparing and filing returns for income tax purposes may be deductible under section 9 of the Act, to the extent that the expense is incurred to earn income from a business or property by the taxpayer. In our view, however, legal expenses incurred with respect to a voluntary disclosure are not incurred to earn income from a business or property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(o) voluntary disclosure costs not covered 41

5 October 2012 Roundtable, 2012-0451251C6 F - Excess of foreign tax withheld at source

tax withheld in excess of Treaty-rate is not deductible as an expense

Tax is systematically withheld on income from ADRs at above the maximum rates permitted by the conventions. In addition to finding that such excess amounts would not qualify as an "income or profit tax" for s. 126 or 20(11) purposes, CRA stated that “the excess amount could not be considered as an outlay or expense made or incurred by the taxpayer to earn income from property.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 126 - Subsection 126(7) - Non-Business-Income Tax foreign withholdings on American depositary receipts in excess of Treaty-limited rate does not qualify as an income tax 104

21 March 2011 External T.I. 2011-0395011E5 - Deductibility of Ontario SAT

A particular Ontario tax on life insurance corporations ("SAT") is determined as a fixed percentage of the amount by which the corporation's taxable paid-up capital exceeds the total of the corporation's Ontario corporate income tax and corporate minimum tax payable for the year. By virtue of being added to the corporation's corporate minimum tax credit carry forward, this tax may then be deducted to reduce future years' income taxes.

The SAT is a capital tax and not an income tax, notwithstanding its potential creditability against income taxes payable, and therefore the incurring of the tax leads to a corresponding deduction in computing income. "In the absence of a specific prohibition in the Income Tax Act to the contrary, provincial capital taxes have been considered to be expenditures incurred for the purpose of gaining or producing income from a business or property and therefore deductible in computing income for federal income tax purposes."

24 June 2010 External T.I. 2010-0358981E5 F - Déductibilité de dépistage de la XXXXXXXXXX

expense of bacteria testing can be deductible even though expenditures do not themselves generate revenue

Can customers of a testing business deduct the cost of testing for bacteria in computing their income? CRA responded:

[I]it is not necessary to prove that the income is actually derived from a particular expenditure in itself. It is sufficient that the outlay or expense is part of an activity of the earning process. …

[T[o the extent that the expenses incurred are reasonable in the circumstances … the cost of testing for the bacterium could be a deductible expense in computing a taxpayer's income under paragraph 18(1)(a).

8 October 2010 Roundtable, 2010-0378521C6 F - Déduction des primes d'assurance frais généraux

pro rata deduction of premiums for overhead expense insurance policy where other risks are also covered

In affirming its policy in IT-233 respecting the deductibility of premiums under an overhead expense insurance policy, CRA stated:

As stated in paragraph 4 of the Bulletin, where a policy covers other risks in addition to overhead expenses, the premium for the “overhead expense insurance” part of the policy will be allowable as described in paragraph 2, provided that the taxpayer furnishes sufficient evidence to enable that part of the premium to be ascertained.

20 August 2009 Internal T.I. 2009-0326941I7 F - Intérêts, Taxe sur le capital, déductibilité

provincial capital tax and interest thereon generally is deductible/income taxes are not

Is provincial capital tax, and interest thereon, deductible in computing income? After observing that “[p]rovincial income tax is not deductible … since … [it] is not an expense incurred for the purpose of gaining or producing income but rather is an expense incurred because income was earned,” CRA stated:

Capital tax is not a tax that is calculated on the income of a business but rather a tax calculated on the paid-up capital of the corporation. Generally, this tax is considered an expense incurred for the purpose of earning income. The 1991Budget of the Department of Finance is consistent with this approach. …

Interest on capital tax will be deductible if the capital tax is deductible by virtue of section 9.

10 April 2008 Internal T.I. 2008-0271801I7 F - Frais juridiques liés à amende ou pénalité

deductibility of legal fees is subject to the 65302 principles including that the defended conduct not be egregious or repugnant

Regarding the deductibility of legal fees incurred in defending in court against various fines and penalties, other than those prescribed, the Directorate noted that s. 67.6 “does not prevent the deduction of legal fees” and noted that, in accordance with 65302 British Columbia, reasonable legal fees incurred for an income-producing purpose are deductible, subject to a qualification:

[I]f an offence is so egregious or repugnant that the fine or penalty subsequently imposed cannot be justified as having been incurred for the purpose of earning income, we may also conclude that the legal fees associated with it were not incurred for the purpose of earning income from business or property and are not deductible by virtue of paragraph 18(1)(a).

16 December 2008 Internal T.I. 2008-0300361I7 F - Déductibilité de l'impôt minimum sur les sociétés

Ontario CMT is non-deductible

In finding that the Ontario corporate minimum tax ("CMT") provided for in ss. 57.1 to 57.12 of the Corporations Tax Act was not deductible in computing income, the Directorate first noted that the “CMT is therefore a calculation of tax based on a corporation's income, with adjustments, appearing in its financial statements,” and after quoting the statement in Roenisch, 1 DTC 199, that “such payment of taxes … made to the province … is not so made to earn the income, it is paid because there is an income showing gain and profit,” the Directorate stated:

Since the CMT is a tax effectively calculated on income, it is therefore not deductible by virtue of paragraph 18(1)(a).

6 November 2007 External T.I. 2007-0227241E5 F - Crédit de taxe sur le capital - moment

Quebec capital tax before credit deduction is deductible in computing income

After noting that the Quebec capital tax credit was government assistance that reduced the capital cost of the related depreciable property at the end of the taxation year in which the entitlement arose, CRA went on to state:

[T[he amount of capital tax otherwise payable, before the credit reduction, is the amount deductible in computing income for the taxation year pursuant to section 9 and paragraph 18(1)(a).

14 June 2007 External T.I. 2006-0209341E5 F - Utilisation d'un bien d'une société de personnes

partner’s use of partnership property is addressed by denying partnership income deductions and under s. 103, rather than through benefit-conferral provisions

A partnership in whose farming business the partners are actively involved owns the residence of one of the partners, who does not pay rent, but pays all the annual expenses of the residence. After noting that except for s. 12(1)(y), there is no statutory provision applying to a partner by reason of the partner’s personal use of partnership property, and also indicating that such personal use was relevant to s. 103(1), CRA went on to state:

[T]he partnership would not be permitted to deduct any operating costs or any other costs or portions of costs relating to the partner's personal use of the capital property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1) personal use of property is a factor going to the reasonableness of the profit-sharing arrangements 74
Tax Topics - Income Tax Act - Section 96 - Subsection 96(2.2) - Paragraph 96(2.2)(d) personal use of property could engage s. 96(2.2)(d) 104
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) conferral-of-benefit provisions do not apply to a partner’s personal use of partnership property other than car 71

17 February 2005 External T.I. 2004-0104731E5 - Disability Income Insurance

Premiums paid by a corporation on a policy providing monthly income benefits to a shareholder for loss of his or her self-employment income would not be deductible by the Corporation and would be included in the individual's income under s. 15(1).

8 May 2001 Internal T.I. 2001-0079857 - WORKERS' COMPENSATION PREMIUMS

Workers' compensation premiums paid by a self-employed Alberta individual would be deductible in computing his income given that compensation payments that might be received by the individual would be included in his income under s. 56(1)(v) and even though the individual would be entitled to an offsetting deduction under s. 110(1)(f)(ii).

20 November 2003 Internal T.I. 2003-0036237 - DEDUCTIBILITY OF HST ASSESSMENT

GST penalties payable by the taxpayer would be deductible by it given that they were incurred in connection with a profit-making scheme and its conduct likely would not be considered to be "egregious or repulsive".

28 April 2010 External T.I. 2009-0347581E5 F - Frais de formation

expense incurred in course of operating real property need not have a direct effect on profit

When asked whether expenses for attending a convention, seminar, luncheon meeting or other meeting incurred by an individual in the course of operating a business or an immovable are deductible under s. 9 even where there is no direct effect on profits, CRA stated:

[I]n order for an expense to be considered to be made or incurred "for the purpose of", it is not necessary to show that income actually resulted from the particular outlay or expenditure itself. It is sufficient that the outlay or expense was a part of the income-earning process.

Is there a distinction between training expenses incurred by an individual to earn property income (e.g., a triplex owner taking property management courses) versus business income? CRA responded:

[W]ith the exception of certain specific provisions … (for example, convention expenses in subsection 20(10) and the restriction on capital cost allowance for rental property in subsection 1100(11) of the Regulations), the Act does not generally provide for a distinction between an expense incurred to earn income from a business and an expense incurred to earn income from property. Consequently, where a source of income exists, either property or business income, reasonable training expenses incurred by a taxpayer to earn income from that source are generally deductible to the extent that they do not produce a lasting benefit to the taxpayer. …

Assuming that the activity of managing a triplex by an individual is commercially viable and that a source of income exists (property or business), it is our view that reasonable expenses incurred by the individual to take property management training courses to improve the individual’s knowledge in this area would be deductible in computing rental income as long as they do not provide a lasting benefit to the individual. …

Regarding a luncheon registration fee paid by a lawyer for a conference on recent case law, CRA stated (before going on to refer to the s. 67.1 limitations):

Generally, the registration fees incurred by an individual in connection with a luncheon seminar are deductible in computing income from a profession under subsection 9(1) provided that they are incurred to maintain, update or upgrade a skill for the purposes of that profession and are reasonable in the circumstances.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Know-How and Training distinction between training and convention expenses/luncheon seminar fees on case law generally are professional deductions 329
Tax Topics - Income Tax Act - Section 20 - Subsection 20(10) convention expenses providing an enduring benefit may be deducted within the s. 20(10) limitations 185

16 January 2003 Internal T.I. 2002-0177807 - GST PENALTIES&INTEREST DEDUCTIBILITY

Although whether penalties and interest assessed under the Excise Tax Act are deductible is a question of fact, they generally will be deductible. Whether or not a penalty for gross negligence opposed under s. 285 of the Excise Tax Act is a breach that is so "egregious" or "repulsive" as to be non-deductible would have to be determined on the facts of each particular case.

AD-00-02 8 February 2000 Communiqué to All Audit Divisions Entitled "Take-Over Bid Costs"

6 February 2002 External T.I. 2001-0105605 - Tax Treatment of Transaction Costs

In respect of considering the deductibility of transaction costs incurred by a public corporation ("Pubco") in the course of take-over of it or a sale of its assets, CCRA stated that:

Expenses incurred to meet the target's obligations imposed under a Securities Act and/or Business Corporations Act in producing circulars for shareholders concerning take-over bids would generally be deductible under subsection 9(1) of the Act, provided these expenses are reasonable ... Where Pubco fights a proposed take-over the Agency expects that Pubco will make a reasonable allocation of costs between those required to meet its obligations under a Securities Act and/or Business Corporations Act, which are deductible, and those incurred to put a defence mechanism in place, which the Agency views as non-deductible.

1 March 2001 External T.I. 2000-0062305 - Stock Option Plan admin fees

The determination of whether fees charged by a foreign parent to a Canadian subsidiary for the participation of its employees in the foreign parent's stock option plan would be deductible is a question of fact.

8 November 1999 External T.I. 9914135 - INTEREST & PENALTY RE MICHIGAN SBT

Penalties in respect of the Michigan single business tax do not meet all the conditions specified in IT-104R2, para. 3 and therefore, unless the facts show otherwise, are not deductible. Interest charged in respect of that tax is deductible in computing income of the taxpayer.

26 January 1999 External T.I. 9831605 - RRSP MGMT FEES, 20(1)(BB)

Management fees relating to an RRSP that are charged directly to the annuitant will not be deductible even if the annuitant collapses portions of the RRSP from time to time, thereby recognizing income.

11 March 1997 Internal T.I. 7-970101 -

The Manitoba and Ontario mining taxes are incurred only after profits have been earned and are not incurred in the course of earning profits or for the purpose of earning such profits and, accordingly, are not deductible expenses. Accordingly, interest on reassessed Manitoba or Ontario mining taxes also are not deductible.


"In a situation where a corporation requests an employee to relocate and become an employee of its wholly-owned subsidiary, the deductibility of any payments made by the corporation as reimbursement for mortgage, utility or other similar expenses incurred by the employee upon termination of his/her employment with the corporation would generally only be permitted to the extent that they are reasonable and to the extent that the reimbursement relates to the services performed by the employee to the corporation."

27 July 1995 Internal T.I. 9514966 - CAPITAL TAX - RESOURCE PROFITS

Provincial capital tax is considered to be paid for the purpose of gaining a producing income from the business providing [sic] there is no requirement that there be income in order for the capital tax to be levied.

10 July 1995 External T.I. 9430445 - PENNSYLVANIA FRANCHISE TAX

The Pennsylvania franchise tax and the Pennsylvania gross receipts tax would be deductible by Canadian trucking companies pursuant to s. 18(1)(a).

10 May 1995 TI (C.T.O "Legal Fees")

If a former husband defaults on his obligation to pay child support and the former wife incurs legal cost in order to enforce their payment, such cost would be considered deductible; however, if the former husband incurs legal cost in order to enforce visitation rights granted under the court order, such cost would not be deductible.

1 September 1994 Internal T.I. 9413847 - DEDUCTIBILITY OF EXPENSES

In response to a situation where a taxpayer was required to pay a settlement to a former tenant in a year in which the taxpayer no longer owned the related rental property, RC noted that in order for the outlay to be deductible, it would have had to be incurred while the taxpayer was carrying on a business or had the property from which it could derive income.

4 July 1994 External T.I. 9413325 - RRSP ADMINISTRATION FEE

A frontend load charge made in connection with the purchase of an annuity contract that is an RRSP would not be considered to be a deductible administration fee.

15 February 1994 External T.I. 9330465 - MORTGAGE INTEREST SUBSIDIES

Mortgage interest subsidies paid to individuals in their capacity of shareholder will not be deductible under s. 18(1)(a).

93 C.M.TC- Q. 5

The branch-level interest tax imposed on a U.S branch of a Canadian company pursuant to I.R.C. s. 884 (f)(1)(B) is considered to be a deductible expense because it is an outlay incurred for the purpose of gaining or producing business income.

93 C.P.T.J. - Q.40

Re deductibility of fines, penalties and interest.

28 June 1993 TI (Tax Window, No. 32, p. 10, ¶2604)

The costs of acquiring insurance for the indemnification of a director or officer will be deductible where the amount of the premium is reasonable and can be considered instrumental in attracting and retaining qualified personnel.

10 June 1993 T.I. (Tax Window, No. 31, p. 24, ¶2550)

The costs to a corporation of a clothing consultant hired for the benefit of certain executives who need to improve their image would be deductible to the corporation.

4 February 1993 T.I. (Tax Window, No. 29, p. 20, ¶2435)

Premiums paid by a corporation for accidental death and dismemberment insurance policies covering its directors and shareholders will not be deductible to it.

26 January 1993 TI 923284 (November 1993 Access Letter, p. 512, ¶245-051; Tax Window, No. 28, p. 1, ¶2383), 923284)

Where a profitable corporation provides services at less than fair market value to an affiliated company with losses, s. 18(1)(a) could restrict its deduction for expenses relating to the provision of such services.

December 1992 B.C. Tax Executives Institute Round Table, Q. 7 (October 1993 Access Letter, p. 479)

An indemnity payment made by one corporation to another as a result of additional Part I.3 taxes or provincial capital taxes payable by the other corporation on a transaction will not be deductible to the payor corporation either in full or as an eligible capital expenditure.

15 December 1992 T.I. (Tax Window, No. 27, p. 18, ¶2334)

Insurance premiums for directors' or officers' insurance should be deductible.

22 April 1992 External T.I. 5-921033 -

Administration fees paid by the annuitant of an RRSP, in order to be deductible, should relate to the overall direction and management of the affairs of the plan trust and should relate to the type of services normally provided by a trustee to the annuitant.

2 April 1992 External T.I. 5-920818 -

Fees paid to an RESP trust are not deductible by the subscriber.

2 April 1992 TI (Tax Window, No. 18, p. 23, ¶1869)

Fees paid to a registered education savings plan trust, including enrolment fees, are not deductible by the subscriber because the subscriber is not in the position to earn income on the amount paid or contributed to the trust.

13 March 1992 External T.I. 5-920029 -

Payments to non-members of a credit union may not be deductible under basic income tax rules because they are made after the determination of net income and are not necessarily made or incurred for the purpose of gaining or producing income.

13 March 1992 External T.I. 5-920029 -

RC is not prepared to confirm that a payment made by a credit union to non-members is deductible under general principles given that there is some doubt as to whether a payment that, in essence, is paid after the determination of net income is made for the purpose of gaining or producing income.

6 February 1992 TI 920224 (CTO "XXX and Excise Penalties"; (Tax Window, No. 16, p. 5, ¶1735))

It is doubtful that a penalty under s. 50(4) of the Excise Tax Act (now s. 79(1)) could be said to be incurred to earn income, because the income would have been no less had the penalty not been incurred, and because the penalty could have been avoided if the taxpayer had not been ignorant or negligent.

20 January 1992 TI (Tax Window, No. 15, p. 22, ¶1706)

Reasonable administrative fees paid directly to the trustee of an RRSP will be deductible by the annuitant.

31 January 1992 Memorandum (Tax Window, No. 15, p. 16, ¶1678)

B.C. mining taxes are not deductible under s. 18(1)(a) because mining taxes are incurred after the income has been earned.

24 February 1992 Memorandum (Tax Window, No. 13, p. 11, ¶1615)

The fees of a receiver-manager of a corporation that no longer carries on its business will not be deductible by it because they are not incurred for the purpose of earning income from the business.

19 July 1991 T.I. (Tax Window, No. 7, p. 8, ¶1363)

Where a property (such as a Florida condominium) is not acquired by a corporation for the purpose of gaining or producing income (e.g., where the property is acquired for the personal use of a shareholder), the corporation will be permitted no deductions for operating costs except to the extent of the rent received by the corporation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) 76

2 July 1991 TI (Tax Window, No. 5, p. 21, ¶1327)

Expenses incurred by a shareholder to attend a shareholders' meeting generally are not deductible in computing income from property.

May 1991 T.I. (C.T.O. Fax Service Document No. 96)

Reasonable administration fees paid by an annuitant to the trustee of an RRSP are considered to be deductible expenses in computing income from property. Administration fees are those that relate to services provided by the trustee to the annuitant.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(5) 44

22 March 1991 T.I. (Tax Window, No. 1, p. 7, ¶1164)

GST payable by a partner on an expense incurred by him in respect of the business of the partnership is deductible.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(16) 62

11 May 1990 Memorandum (October 1990 Access Letter, ¶1494)

GST interest is considered in the same light as provincial sales tax interest and is deductible from income. However, statutory penalties are non-deductible.

17 April 1990 TI (September 1990 Access Letter, ¶1436)

RC will apply s. 9 to the payment of a retiring allowance and allow its deduction at the time the expense was incurred.

29 January 1990 Memorandum (June 1990 Access Letter, ¶1286)

RC considers the Cassidy case to be a precedent.

14 December 89 TI (May 1990 Access Letter, ¶1203)

Ontario employee health tax premiums will be deductible expenses of the employer and will not be a taxable benefit to the employees.

86 C.R. - Q.78

A corporation can deduct the costs of preparing employees' returns, whereas amounts paid to an external accountant for doing so may not be deductible.

84 CR - Q.72

Whether travel-related payments, made by a Canadian employer either to transfer an employee abroad to an affiliate or to return him to Canada, will be deductible must be determined on the facts of each case.

81 CR - Q.40

The cost of winding-up a company cannot be said to be laid out to earn income and thus is not deductible either as a current operating expense or as an eligible capital expenditure.

81 CR - Q.43

In order for a taxpayer to deduct costs of maintaining an office in his home, one or more rooms must be set aside and used solely for the purpose of earning income, and the amount claimed must be reasonable.

81 C.R. - Q.44

Financial counselling fees and fees for tax return preparation incurred by a corporation for the benefit of its shareholder (resulting in the application of s. 15(1)) are not deductible.

79 CR - Q.20

RC is not aware of any instance where the deduction of expenses incurred to obtain a ruling has not been permitted.

IT-104R2 "Deductibility of Fines or Penalties"

IT-185R "Losses from Theft, Defalcation or Embezzlement"

IT-467R "Damages, Settlements and Similar Payments"

Damages paid for wrongful dismissal will normally be deductible.

IT-488R "Winding-up of 90%-Owned Taxable Canadian Corporations"

Cost incurred by a subsidiary in connection with the winding-up are non-deductible because they were not incurred for the purpose of gaining or producing income from a business or property of that corporation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) 0

IT-487 "General Limitation on Deduction of Outlays or Expenses"

It is not necessary to show that income actually results from the particular expenditure. It is sufficient that the expense was a part of the income-earning process.

IT-223 (Cancelled) "Overhead Expense Insurance vs. Income Insurance" 26 May 1975

1. ...[I]ndividuals in business, whose business income is cut off when they are temporarily disabled through illness or accident, sometimes take out insurance to cover the cost to them of their fixed business expenses, which have to be met even when they are unable to earn income. Such insurance may be called "overhead expense insurance"… .

2. An overhead expense insurance policy normally will provide for reimbursement to the insured for certain kinds of expenses only, and it is probable that the maximum amount, either periodic or total, payable under the policy will be set out. Where the overhead expense insurance policy provides that no more will be payable under the policy than the amount of the overhead expense actually incurred or paid by the insured during his period of disablement the premium will be allowable as a business expense and any benefit received thereunder will be included in income. …

3. Where the insurance policy provides a taxpayer carrying on business or practising a profession with a benefit for loss of income earning capacity such as income disability insurance, the premium on such a policy is a personal and living expense which is non-deductible and the benefit received by the taxpayer is not considered to be income subject to tax in his hands.

4. In those cases where an insurance policy provides life insurance and other benefits in addition to the benefits described in paragraphs 2 and 3 above the premium for the overhead expense insurance part of the policy will be allowable as described in paragraph 2 above provided the taxpayer furnishes sufficient evidence to enable that part of the premium to be ascertained.

IT-124R5 "Contributions to Registered Retirement Savings Plans"

Reasonable administration fees paid by an annuitant to the trustee of an RRSP are considered to be deductible expenses in computing income from property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(5) 0

IC 77-11 "Sales Tax Reassessments - Deductibility in Computing Income"

The interest element of a sales tax reassessment will be deductible provided that the sales tax amount was itself deductible in computing income. However, fines and penalties relating to those reassessments will not be deductible even though they may be computed in a manner similar to interest.


Krishna, "What Constitutes a Business?", Canadian Current Tax, June 1995, Vol. 5, No. 9, p. 90.

Fien, "A Directors' Liability and Indemnifications, Section 160 Assessments, and Ordinary Course of Business Provisions", 1992 Conference Report, pp. 53:21-53:26

Discussion of tax treatment of corporate indemnities given to the directors.