Tax court of Canada | Tax | Income tax | Employment income
In 2004, father gifted his T Corp. shares to taxpayer M and by end of 2004 M owned 25,918.58 of common shares while her brothers N, B and P each owned 3,708.58 such shares. In September 2011, B and P launched guardianship application in respect of father in Ontario Superior Court of Justice against inter alia M and N, alleging that 2004 transfer of shares was improper. In December 2011, B and P obtained interim injunction restraining M from dealing with disputed shares and restricting N, M and M’s husband R from disposing of T Corp. assets and having T Corp. pay them more than $10,000 per month compensation. In March 2012, Ontario Superior Court ordered trial of issue as to validity of share transfer and that R be joined as defendant, and in October 2012 N, M and R obtained order setting aside interim injunction. Amended statement of claim was filed by B and P in April 2013, claiming against M, N and R for number of remedies. For their respective 2012 taxation years, N, M and R successfully claimed deduction under s. 8(1)(b) of Income Tax Act of their legal expenses in Ontario Superior Court proceeding. Legal fees incurred and claimed in respect of 2013 taxation year were disallowed. N, M and R appealed. Appeals dismissed. In 2008 Federal Court of Appeal judgment upheld Tax Court of Canada decision in matter that was not substantially dissimilar to this situation. Only differences in wording of two provisions were replacement of “salary or wage” with “an amount” and “by the employer or former employer of the taxpayer” with “that, if received by the taxpayer, would be required by this subdivision to be included in computing the taxpayer’s income”. On basis of earlier decision it was concluded that claimed legal expenses reached beyond scope of s. 8(1)(b), which had relatively narrow scope and as such did not extend to corporate claims with manifold remedies sought on such bases as unjust enrichment and breach of fiduciary obligation.
Catlos v. The Queen (2018), 2018 CarswellNat 4759, 2018 TCC 177, B. Russell J. (T.C.C. [General Procedure]).
