The taxpayer, a lawyer, received a four-year sentence and was suspended from practising law as a result of his conviction for obstruction of justice in respect of his defence of a client. The trial judge allowed the taxpayer to deduct his legal fees in computing his professional income, on the basis that the expenses arose directly from his law practice.
The Court of Appeal granted the Minister's appeal. The test in Symes is whether the taxpayer incurred the expense for the purpose of gaining or producing income from a business. As the taxpayer's licence to practice law had already been suspended when the expenses were incurred, they could not have been incurred for an income-producing purpose. Noël J.A. stated (at para. 44):
[T]he evidence had to show at the very least that the respondent had a plausible defence against the criminal charges and that, should he win his case, he was likely to regain his licence to practise.
The taxpayer had not introduced any new evidence on whether he was guilty of an offence, so the Court deferred to the finding at trial that he was. It was also immaterial that the taxpayer might resume the practice of law in a subsequent year. Noël J.A. stated (at para. 34):
[T]he deductions allowed under subsection 9(1) and paragraph 18(1)(a) are for expenses incurred for the purpose of gaining income for the year in which they are claimed. The mere fact that the expenses incurred by the respondent could earn him income outside the years at issue does not disallow [sic] them.
Another hurdle to the taxpayer's case was that expenses to protect an enduring asset, such as his licence to practise, are capital outlays (para. 42).