The taxpayer, which was a registered egg producer, deliberately produced over quota in order to maintain its major customer, (who was expanding), until it could purchase additional quotas. The over-production was discovered by the British Columbia Egg Marketing Board and the taxpayer deducted a resulting over-quota levy paid by it to the Board together with related interest and legal expenses.
In finding that all such amounts were fully deductible, Iacobucci J. indicated that he declined to follow Imperial Oil, 3 DTC 1090 (whose requirement that expenses need be incidental, in the sense that they were unavoidable, was based on the more restrictive statutory ancestor of s. 18(1)(a)), that making the deductibility of fines depend upon considerations of public policy would "place a high burden on the taxpayer who is to engage in this analysis in filling out his or her income tax return and would appear to undermine the objective of self-assessment underlying our tax system" (p. 5811), and that, in any event, denying deductibility might undercut one of the underlying premises of our tax system which "is that the state taxes only net, rather than gross, income because it is net income that measures a taxpayer's ability to pay". He concluded that fines and penalties that are incurred for the purpose of producing income (as was the case here) should be deductible.
He added (at p. 5813):
It is conceivable that a breach could be so egregious or repulsive that the fine subsequently imposed could not be justified as being incurred for the purpose of producing income.