Tax court of Canada | Tax | Income tax | Business and property income
Taxpayer accountant was one of founders and shareholders of company established to provide services as regional airline. Company retained professionals, including plaintiffs, to provide services for developing airline business before declaring bankruptcy. Plaintiffs’ action against company led to judgment finding taxpayer and other defendants liable to pay damages. Taxpayer’s appeal was dismissed. Taxpayer claimed deduction for his payment of damages to plaintiffs and of legal expenses for litigation. Minister reassessed taxpayer under Income Tax Act on basis that that expenses were personal in nature. Taxpayer appealed. Appeal dismissed. It was clear that taxpayer never had intention to carry out regional airline activities personally or as member of group of investors and promoters and never did so. Activities carried out by taxpayer in connection with airline venture did not constitute source of income to him. Even if airline activities were to constitute source of income for taxpayer, it disappeared when company declared bankruptcy and its holding company was dissolved. In year in which taxpayer made payment, he had no source of income coming from airline’s activities and was not carrying out any business other than his accounting one. There was no nexus between expenses claimed as deductions and business he was actually carrying on in that year. Expenses made when taxpayer was ordered to pay damages were not made for purpose of gaining or producing income as required by s. 18(1)(a) of Act.
Nandlal v. The Queen (2017), 2017 CarswellNat 4239, 2017 CarswellNat 8946, 2017 TCC 162, 2017 CCI 162, Réal Favreau J. (T.C.C. [Informal Procedure]).
