Canada v. Gifford, 2002 CAF 301 (2002)

Extract

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Canada v. Gifford, 2002 CAF 301 (2002)

Date: 20020812

Docket: A-191-01

Neutral citation: 2002 FCA 301

CORAM: STONE J.A.

ROTHSTEIN J.A.

SEXTON J.A.

BETWEEN:

HER MAJESTY THE QUEEN

Applicant

and

THOMAS GIFFORD

Respondent

Heard at Toronto, Ontario, on May 16, 2002.

Judgment delivered at Ottawa, Ontario, on August 12, 2002.

REASONS FOR JUDGMENT BY: ROTHSTEIN J.A.

CONCURRED IN BY: STONE J.A.

SEXTON J.A.

Date: 20020812

Docket: A-191-01

Neutral citation: 2002 FCA 301

CORAM: STONE J.A.

ROTHSTEIN J.A.

SEXTON J.A.

BETWEEN:

HER MAJESTY THE QUEEN

Applicant

and

THOMAS GIFFORD

Respondent

REASONS FOR JUDGMENT

ROTHSTEIN J.A.

INTRODUCTION

[1] This is an application for judicial review by the Minister of National Revenue from a February 15, 2001 decision of the Tax Court of Canada (reasons reported at 2001 D.T.C. 168) in which the respondent's appeal was allowed. There are two issues:

1. Whether an amount paid by the respondent to a fellow employee under an Agreement to Purchase Client Base of Financial Advisor is a deductible current expense or a non-deductible payment on account of capital, having regard to subparagraphs 8(1)( f )(iv) and (v) of the Income Tax Act .

2. Whether interest on the amount borrowed by the respondent for payment of the amount paid under the Agreement is a deductible expense or a non-deductible payment on account of capital, having regard to subparagraphs 8(1)( f )(iv) and (v).

FACTS

[2] The respondent and Scott Bentley were employees of Midland Walwyn in North Bay, Ontario. Each was a financial advisor who served his own group of clients. Bentley wanted to leave Midland Walwyn and the respondent wanted to serve Bentley's clients. They entered into an "Agreement to Purchase Client Base of Financial Advisor" dated December 10, 1995, under which Bentley agreed:

1. to provide a written endorsement of the respondent to each of his clients set out on a client list;

2. not to provide retail securities investment advice to the clients on the client list for a period of 30 months;

3. not to provide material information regarding the client list to anyone without the consent of the respondent; and

4. to direct Midland Walwyn to transfer the clients on the client list to the respondent.

and the respondent agreed:

1. on closing, to pay Bentley $90,000; and

2. on April 8, 1996, to pay Bentley a further maximum amount of $10,000, the $10,000 to be reduced according to a formula based upon erosion of mutual fund assets.

[3] The Branch Manager of the Midland Walwyn office where Bentley and the respondent worked facilitated the Agreement in order to ensure Bentley's clients remained with the Branch.

[4] The respondent was under the impression that, in his 1996 taxation year, he could deduct 7% of 75% of $100,000 or $5,250 in respect of the amount paid to Bentley and he did so. He also deducted $8,608.07 paid as ...

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