Public Policy


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

In finding that considerations of public policy should not enter into a determination as to whether fines or penalties were deductible in computing income, Iacobucci J. stated (at p. 5811) that doing so 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".

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. After finding that such penalties were not incurred for the purpose of earning income from the taxpayer's business, Strayer J.A. went on to find that they also were non-deductible because:

"It is contrary to public policy to allow the deduction of a fine or penalty as a business expense where that fine or penalty is imposed by law for the purpose of punishing and deterring those who through intention or a lack of reasonable care violate the laws."

TNT Canada Inc. v. The Queen, 88 DTC 6334, [1988] 2 CTC 91 (FCTD)

Fines paid by the taxpayer (a common carrier) under the Customs Act and the Excise Tax Act for having repair work done in the United States without paying the necessary sales and excise taxes, and for using foreign carriers in Canada who made more than one stop, were deductible in the absence of evidence that the taxpayer was flouting a law of the legislature to such a degree that public policy would demand that no deduction be allowed. However, the taxpayer deducted the fines in the wrong taxation year.

Potential claims by customers for damaged or lost goods also would have been deductible in the absence of s. 18(1)(e).

Day & Ross v. The Queen, 76 DTC 6433, [1976] CTC 707 (FCTD)

Fines paid by the taxpayer, a trucking company, for violations of highway weight restriction laws "resulted from the day to day operation of its transport business and were paid as a necessary expense," and accordingly were deductible. Dube, J. noted that the violations were "obviously not outrageous transgressions of public policy".

See Also

McNeill v. The Queen, 99 DTC 280 (TCC), rev'd 2000 DTC 6211 (FCA)

In finding that damages paid by the taxpayer for breach of his non-compete covenant provided on a sale of his accounting practice to a firm of chartered accountants were not deductible, Beaubier T.C.J. indicated that the taxpayer would not be able to deduct such damages if the acts giving rise to the damages were "reprehensible", and went on to find (at p. 287) that the taxpayer had paid the damages "for the commission of reprehensible acts committed deliberately with the aim of causing damage to them; that is, not to transfer to them what they paid him for".

Neeb v. The Queen, 97 DTC 895 (TCC)

In finding that the taxpayer, who had carried on a narcotics business, could not deduct the value of hashish that had been seized by the American authorities, Bowman T.C.J. stated (at p. 902) that he could "see no reason why the Canadian public should be expected to subsidize a drug dealer's loss through forfeiture of illegal drugs, by allowing him to write-off the cost of drugs so forfeited, even if that cost had been established".

Port Colbourne Poultry Ltd. v. The Queen, 97 DTC 237, [1997] 2 CTC 2480 (TCC)

After finding that a fine that the taxpayer agreed to pay as a result of an alleged environmental offence by one of its unsupervised employees was not deductible by virtue of not having been incurred for an income-producing purpose, Rowe D.J. went on to find that, in any event, deductibility of the fine would have been contrary to public policy.

Sunys Petroleum Inc. v. The Queen, 96 DTC 1759, [1996] 3 CTC 2931 (TCC)

Penalties payable by the taxpayer (which operated gasoline stations) as a result of its failure to remit federal sales and excises 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."

Bell T.C.J. found it unnecessary to incorporate any considerations of public policy in his reasons given that such criteria did not form unnecessary grounds for the decision of the Federal Court of Appeal in the Amway decision.

R. v. Castelli (1992), 11 OR (3d) 170 (Ont. Ct. G. D.)

In the absence of evidence that alleged kick-back payments made by the accused were not reasonable or necessary to generate income, it followed that the Crown had failed to discharge the onus of proof in this respect and that, therefore, the trial judge erred in finding that the amounts would not be deductible.

Atomic Transfer Ltd. v. MNR, 64 DTC 153 (TAB)

Fines paid by the taxpayer (a trucking company) for operating overweight trucks on the highways of various provinces were non-deductible because they were not "expenses connected with or arising out of a trade", and "furthermore, it would be against public policy to allow such penalties or fines even if a profit resulted" (p. 154).

Administrative Policy

6 April 2001 External T.I. 2001-0074185 - DEDUCT. OF FINES AND PENALTIES

In light of the 6502 decision, the tests of "avoidability" and "public policy" discussed in IT-104R2 are no longer relevant, and as a result the Bulletin will be withdrawn entirely.

IT-104R "Deductibility of Fines or Penalties"

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

Damages payable as a result of a legal action or certain other wrongful conduct will not be deductible if to allow the expense would be contrary to public policy.


Krasa, "The Deductibility of Fines, Penalties, Damages, and Contract Termination Payments", 1990 Canadian Tax Journal, p. 1399.