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Docket: 2002-1406(IT)I |
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BETWEEN: |
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JOHN M. LOO, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Appeals heard on December 16, 2002 at Vancouver, British Columbia
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Before: The Honourable Judge L.M. Little |
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Appearances: |
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Counsel for the Appellant: |
Max Weder |
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Counsel for the Respondent: |
R. Scott McDougall |
____________________________________________________________________
JUDGMENT
The appeals from the assessments made under the Income TaxAct, for the 1999 and 2000 taxation years are dismissed, without costs, in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 4th day of April 2003.
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"L.M. Little" |
J.T.C.C.
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Citation: 2003TCC198 |
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Date: 20030404 |
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Docket: 2002-1406(IT)I |
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BETWEEN: |
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JOHN M. LOO, |
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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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REASONS FOR JUDGMENT
Little, J.
A. FACTS:
[1] The Appellant is employed as a lawyer in the Vancouver Regional Office of the Department of Justice ("Justice").
[2] The Appellant and approximately 55 lawyers employed at the Vancouver Regional Office of Justice commenced a court action in the Supreme Court of British Columbia against the Attorney General of Canada (the "Court Action").
[3] In the Court Action the Appellant and the other 55 lawyers at the Vancouver Regional Office of Justice maintain that they are entitled to receive salary or wages from the Federal Government at the same level as Justice pays the lawyers employed at the Toronto Regional Office of Justice.
[4] The Statement of Claim filed by the Appellant and his associates also claims damages, interest and costs.
[5] The trial of the Court Action is scheduled to commence on March 15, 2004. (Four weeks have been reserved for the trial.)
[6] The Appellant and his associates retained the services of lawyers Jim Aldridge and Richard Sugden to represent them in the Court Action.
[7] In the 1999 and 2000 taxation years the Appellant paid his share of the legal fees in connection with the Court Action. The Appellant paid legal fees as follows:
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1999 |
$3,140.00 |
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2000 |
$1,104.00 |
[8] In determining his income for the 1999 and 2000 taxation years the Appellant deducted the amounts of $3,140.00 and $1,104.00 respectively.
[9] By a Notice of Reassessment issued on the 19th day of March 2001 the Minister of National Revenue (the "Minister") reassessed the Appellant's 1999 taxation year and legal fees of $3,140.00 were disallowed.
[10] By a Notice of Reassessment issued on the 3rd day of January 2002 the Minister reassessed the Appellant's 2000 taxation year and legal fees of $1,104.00 were disallowed.
B. ISSUE
[11] The issue is whether the Appellant is entitled to deduct the legal fees of $3,140.00 and $1,104.00.
C. ANALYSIS
[12] Paragraph 8(1)(b) of the Income Tax Act (the "Act") reads as follows:
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) Legal expenses of employee -- 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;
[13] Paragraph 8(1)(b) of the Act was amended by 1990, c. 39, s.2, applicable to amounts paid after 1989. Paragraph 8(1)(b) formerly read:
(b) amounts paid by the taxpayer in the year as or on account of legal expenses incurred by him in collecting salary or wages owed to him by his employer or former employer.
When this provision existed prior to the amendment introduced in 1990, legal expenses were considered deductible only if the taxpayer had successfully completed litigation against his employer. (emphasis added)
[14] The Tax Court has evolved in its interpretation of the current provision. Several recent court decisions which deal with the current wording of paragraph 8(1)(b) can be contrasted in order to illustrate the evolving interpretation of this paragraph.
[15] The first two decisions that are relevant are Turner-Lienaux v. Canada, 97 DTC 5294 and Basque v. Canada, [1998] T.C.J. No. 898 (T.C.C.).
[16] In Turner-Lienaux, the Federal Court of Appeal decided that Judge Margeson of the Tax Court did not err in stating that a taxpayer cannot be "owed" wages when he has not performed the services. In Turner-Lienaux v. The Queen, 97 DTC 261, at the Tax Court level Margeson, J. said at page 264:
This Court has some difficulty in concluding that a person is "owed" a salary or "wages" if he did not do the work or occupy the position that required the salary or wages to be paid.
[17] In Basque, Judge Tardif of the Tax Court decided that when the taxpayer has not yet resolved contentious issues with regards to the litigation against his employer, no deduction is available under paragraph 8(1)(b).
[18] The second line of cases on this point are Fortin v. Canada, [2001] T.C.J. No. 420 (T.C.C.), and Ananthan v. Canada, [2001] 2. C.T.C. 2658 (T.C.C.). In Fortin, Judge Dussault of the Tax Court carried out a detailed analysis of paragraph 8(1)(b) and its interpretation in Interpretation Bulletin IT-99R5, and in Turner-Lienaux and Basque. Judge Dussault stated at paragraphs 21 and 22:
[21] It seems quite clear to me that a person who brings an action to collect salary or wages owed by an employer or former employer must first show that the services in respect of which he or she claims to be entitled to the salary or wages have been rendered. If they have, it is clear that paragraph 8(1)(b), in the version applicable after 1989, is no longer limited to legal expenses incurred to collect amounts owed as salary or wages by an employer or former employer. The words "or [to] establish a right to" that now appear in paragraph 8(1)(b) of the Act deserve some comment. The preposition "to" in front of an infinitive means "in order to" or "for the purpose of". Although I do not have to decide the issue for the purposes of this case, in my opinion, the words "to ... establish" do not mean that a taxpayer must establish or succeed in having established a right to salary or wages in order to be entitled to a deduction under paragraph 8(1)(b). This is contrary to what is indicated in paragraph 23 of Interpretation Bulletin IT-99R5, "Legal and accounting Fees", December 11, 1998, which reads as follows:
If the taxpayer is not successful in court or otherwise fails to establish that some amount is owed, no deduction for expenses is allowed. However, failure to collect an amount established as owed to the taxpayer does not preclude a deduction under this paragraph.
[22] I would simply add that the actual wording of paragraph 8(1)(b) does not appear to contain the condition stated in the first sentence of paragraph 23. Moreover, paragraph 8(1)(b) does not limit the deduction of legal expenses to the amount of salary or wages included in income for the year. This is in contrast to paragraph 60(o.1).
In Sheila Ananthan v. The Queen, Judge Teskey of the Tax Court stated at page 2659:
...for the Minister to take the position that she has to wait until who knows when, and whether she is successful or not, it does not matter, she will get it then, I think is totally wrong. I think the Interpretation Bulletin is wrong.
Judge Teskey allowed the Appellant's appeal in Ananthan.
[19] Given that the second line of cases referred to above are recent and that Judge Dussault in Fortin carefully examines the first line of cases, the trend within the Tax Court is that paragraph 8(1)(b) of the Act should be interpreted as meaning that litigation does not have to be successfully completed in order for the taxpayer to be entitled to a deduction of the legal fees.
[20] As is noted above, the Appellant and his associates are still in the midst of litigation against their employer. The analysis of the Court decisions referred to above indicate that the pending status of the Appellant's litigation should not be a bar to obtaining a deduction under paragraph 8(1)(b) of the Act. However, I believe that it is still necessary to examine the nature of the lawsuit against the employer to establish whether or not the Order sought by the Appellant and his associates is for "salary or wages owed" to the taxpayer by the employer.
[21] Examples of what was considered owed and not owed may provide guidance. In cases involving a promotion, where the taxpayer sues his employer because he feels he should not have been denied a promotion, the Courts have said that wages are not owed because services for the new position have never been rendered. This can be contrasted with wrongful dismissal cases, where the taxpayer is seeking back pay and reinstatement. In wrongful dismissal cases, the taxpayer is owed wages because he should have been allowed to work and collect pay, but was wrongfully prevented by the employer from doing so. In addition, a taxpayer seeking to be paid for overtime worked is also owed that wage.
[22] I believe that this appeal is distinct from the above line of cases. In this situation the Appellant and his associates maintain that they are owed a salary equivalent to that of a lawyer in the Toronto Regional Office of Justice.
[23] In my opinion, the wages that the Appellant seeks by the Court Action could not be said to be "owed" to him. Although the Appellant performs the same type of work as a Justice lawyer in Toronto, the Appellant is not "owed" the wages in question because the lawyers in the Vancouver Regional Office of Justice have negotiated a yearly salary and have been paid according to their contract. A raise is not "owed" to one group of people just because another group of people have received an increase in their salary. The fact that other lawyers received an increase in their salary may be a factor in negotiating a raise.
[24] In reaching my conclusion I have also referred to Jazairi v. Canada, 2001 DTC 5163 (F.C.A.). In Jazairi the Federal Court of Appeal decided that the Appellant was not owed a higher wage even though he did the same work as that of a professor because the higher wage was based on rank, not duties performed. Applying the Jazairi decision to this appeal, the Appellant and his associates may believe that they deserve the same salary as Justice lawyers in Toronto because they perform the same kind or type of duties. However the increase in salary that is paid to Toronto lawyers may have been given to the Justice lawyers in Toronto for a variety of reasons other than duties that they performed. For example, in 1990, Toronto may have had a higher cost of living or the caseload for lawyers in Toronto may have been much greater. In addition, it may have been impossible for Justice to recruit competent lawyers in Toronto without an increase in salary.
[25] The appeal is dismissed, without costs.
Signed at Vancouver, British Columbia, this 4th day of April 2003
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"L.M. Little" |
J.T.C.C.
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CITATION: |
2003TCC198 |
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COURT FILE NO.: |
2002-1406(IT)I |
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STYLE OF CAUSE: |
John M. Loo and Her Majesty the Queen |
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PLACE OF HEARING: |
Vancouver, British Columbia |
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DATE OF HEARING: |
December 16, 2002 |
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REASONS FOR JUDGMENT BY: |
The Honourable Judge L.M. Little |
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DATE OF JUDGMENT: |
April 4, 2003 |
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APPEARANCES: |
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Counsel for the Appellant: |
Max Weder |
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Counsel for the Respondent: |
R. Scott McDougall |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Max Weder |
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Firm: |
Borden Ladner Gervais LLP Vancouver, British Columbia |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |