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Docket: 2002-2250(IT)I |
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BETWEEN: |
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MEICHLAND OLIVER BLACKBURN, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeal heard on February 16, 2004, at Windsor, Ontario,
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By: The Honourable Justice E.A. Bowie |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Marlyse Dumel |
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JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 2000 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to deduct legal expenses in the amount of $8,770 pursuant to paragraph 8(1)(b) of the Act.
Signed at Ottawa, Canada, this 24th day of February, 2004.
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"E.A. Bowie" |
Bowie J.
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Citation: 2004TCC180 |
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Date: 20040224 |
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Docket: 2002-2250(IT)I |
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BETWEEN: |
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MEICHLAND OLIVER BLACKBURN, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Bowie J.
[1] In filing his income tax return for the year 2000, Mr. Blackburn claimed a deduction from income under paragraph 8(1)(b) of the Income Tax Act (the Act) for legal fees that he had paid in connection with a charge of dangerous driving that had been preferred against him on October 31, 1997. The Minister of National Revenue (the Minister) disallowed the claimed deduction, giving rise to this appeal.
[2] In October 1997, Mr. Blackburn was a member of the Niagara Regional Police Service (NRP). The incident that resulted in the charge against him took place while he was off duty. Nevertheless, he was immediately removed from patrol duty and assigned to deskwork pending his trial. He well understood that conviction of such an offence would have a very serious adverse effect on his career as a police officer, and so he retained counsel to prepare and present his defence. He testified that he would not have retained a lawyer but would have conducted his own defence had it not been for the likelihood of losing pay, or even his job, in the event of a conviction. I have no reason to disbelieve this evidence. Indeed, I was very favourably impressed by Mr. Blackburn as a witness, and I accept his evidence in its entirety.
[3] For reasons that were not explained in the evidence, and are not relevant here, Mr. Blackburn ended the retainer of his first counsel and retained a different counsel to conduct his trial. In all, he paid $10,000 to these two lawyers for services up to and including the trial. His trial took place on April 30, 1999, and he was convicted. On August 11, 1999, Mr. Justice Collins sentenced him to serve 30 days in jail. On the same day, Inspector Damian Parrent of the NRP suspended the Appellant from duty without pay. This was a direct and immediate result of the imposition on him of a term of imprisonment.
[4] Mr. Blackburn then retained a third counsel to appeal his conviction, and to secure his release on bail pending that appeal. On July 13, 2000, Mr. Justice McLean of the Superior Court of Ontario heard that appeal, and allowed it. On July 19, 2000 the Acting Chief of the NRP signed Routine Order No. 82-2000.[1] It reads in part:
On July 13, 2000, an appeal of the conviction and sentence ... was quashed and a new trial ordered. As a result of the court decision and in accordance with the Police Services Act of Ontario, effective July 13, 2000, Constable Meichland Blackburn is suspended from duty with pay.
Although it does not appear in this Routine Order, it is clear from the balance of the evidence that the period of suspension that the Appellant had by this time served was converted to a suspension with pay, rather than without. On October 13, 2000, the Acting Superintendent, Administrative Services of the NRP wrote to confirm that Mr. Blackburn's net pay for the period of his suspension between August 11, 1999 and July 13, 2000 would be deposited to his bank account on November 2, 2000,[2] and that was in fact done. That payment, on which of course he was required to pay income tax, was an automatic and immediate result of the success of his appeal. His gross pay for the period in question was $51,832.37.
[5] The Appellant now claims that he is entitled to deduct from his income for 2000 all the legal fees that he paid, both for the trial and for the appeal. He argued strenuously before me that his motivation for retaining all three counsel was to prevent the loss of pay that he knew would inevitably result from a conviction on a dangerous driving charge. Counsel for the Respondent takes the position that he is entitled to no deduction under paragraph 8(1)(b) as no wages were owed to him at the time he retained counsel, the litigation was not against his employer, and the purpose for which he retained counsel and paid their fees was simply to defend a charge, and later to pursue an appeal from conviction, not to recover wages owing to him.
[6] The issue that I have to decide is simply whether, on these facts, it can properly be said that the payments in question come within the language of the paragraph. It reads:
8(1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:
...
(b) amounts paid by the taxpayer in the year as or on account of legal expenses incurred by the taxpayer to collect or establish a right to salary or wages owed to the taxpayer by the employer or former employer of the taxpayer;
I shall deal first with the fees that the Appellant paid to be represented at the trial before Mr. Justice Collins. At this point, no one owed the Appellant any salary or wages. His duties had been changed, but he had not suffered any loss of pay. I accept that he retained counsel, and paid their fees, to guard against the possibility (which became reality) that he would be convicted, and that one result of that would be loss of salary, but that does not bring his expenditure for legal fees within the very narrow confines of paragraph 8(1)(b). He was, in fact, in precisely the same position as the Appellant in Blagdon v. The Queen.[3] Captain Blagdon retained counsel to represent him at an inquiry under the Canada Shipping Act,[4] because he knew that if that inquiry went badly for him he could lose his Master's papers, future income, and perhaps his career. His claim to deduct the fees paid to counsel failed, however, because there was no salary owing to him. The Federal Court of Appeal in that case affirmed Associate Chief Justice Bowman's decision, and I am bound to follow it. The claim to deduct the fees paid to trial counsel must therefore fail. The same considerations lead to the same result as to the fees that Mr. Blackburn paid to his counsel at the second trial, which took place following his successful appeal.
[7] The fees paid to counsel on appeal are a different matter, however. As soon as he was sentenced, the Appellant started to lose income as the direct result of that sentence. His only possible remedy was to have the conviction and the sentence set aside, which he did. The restoration of his lost pay followed automatically. There was no hearing, and no need for a hearing, under the Police Services Act.[5] The quashing of the conviction was effective to " ... establish a right to salary or wages owed ..." to him.
[8] It may seem superficially attractive to consider that the reasoning in Blagdon applies to fees paid for the appeal as well. No back pay was "owed to" Mr. Blackburn until he succeeded in his appeal and his conviction was quashed. However, when the expression "... to ... establish a right to salary or wages owed to the taxpayer ..." is read in its entirety, and in its context, it must be intended to include those situations in which the salary or wages become owing to the taxpayer as the result of the litigation (or other legal services) for which the expenses were incurred. To establish a right is to bring that right into being; if the wages were owing before the legal services were rendered then those services could not be said to have brought the right into being. Grammatically then, the phrase must include enforcing an existing right to salary and wages owing, and also establishing (bringing into existence) such a right to salary or wages, which thereupon become owing to the taxpayer. In the present case, the appeal did the latter, and so the fees for the appeal fall within the permissible deduction.
[9] Ms. Dumel argues that the legal expenses relating to the appeal were, nevertheless, not incurred for the purpose of giving rise to a right to salary or wages. The purpose, she says, was to secure a quashing of the conviction. In my opinion, this is taking rather too narrow a view of the matter. In Ludco Enterprises Ltd. v. Canada[6]the Supreme Court of Canada held that in the absence of fraud or other vitiating circumstances (and there are none of those here):
... a taxpayer's ancillary purpose may be nonetheless a bona fide, actual real and true objective of his or her investment, equally capable of providing the requisite purpose for interest deductibility in comparison with any more important or significant primary purpose.[7]
[10] The same principle applies to the deductibility of legal fees where, as here, the evidence is abundantly clear that there was more than one bona fide, actual real and true objective in the taxpayer's mind. Happily, this result is in accordance with (although of course not dictated by) sound tax policy; the successful appeal did give rise to income that was taxed in the Appellant's hands.
[11] The Appellant is entitled to a deduction for the legal fees to the extent, but only to the extent, that they were paid in order to secure the quashing of the conviction. Fees paid for the application for bail pending appeal cannot be brought within the words of paragraph 8(1)(b). In all, five accounts rendered by the firm that handled the appeal were entered into evidence. They are:
Exhibit R-2 $1,918.65
R-3 531.92
R-4 4,129.95
R-6 3,507.68
R-7 2,725.00
[12] The first four relate to the appeal, and the fifth to the second trial. Exhibit R-2 covered preparing, serving and filing the Notice of Appeal and obtaining an Order for bail pending appeal. A reasonable apportionment of the first account would be to attribute $600 to the Notice of Appeal and the balance to the bail application. The Appellant is entitled to a deduction of $8,770 under paragraph 8(1)(b) of the Act. The appeal is allowed and the assessment is referred back to the Minister for reconsideration and reassessment on that basis.
Signed at Ottawa, Canada, this 24th day of February, 2004.
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"E.A. Bowie" |
Bowie J.
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CITATION: |
2004TCC180 |
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COURT FILE NO.: |
2002-2250(IT)I and Her Majesty the Queen |
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STYLE OF CAUSE: |
Meichland Oliver Blackburn |
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PLACE OF HEARING: |
Windsor, Ontario |
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DATE OF HEARING: |
February 16, 2004 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice E.A. Bowie |
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DATE OF JUDGMENT: |
February 24, 2004 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Marlyse Dumel |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
N/A |
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Firm: |
N/A |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |