ZR v. The Queen, 2007 DTC 1577, 2007 TCC 598 -- summary under Income-Producing Purpose

The taxpayer was permitted to deduct as a business loss amounts paid by her in settlement of claims brought by a franchisor against her bankrupt husband, who had personally guaranteed franchise obligations of companies in which they had invested. McArthur J. noted (at para. 18) that in determining the potential deductibility of damages "it is appropriate to focus on the origin of the claim" and found that the origin of the claim was a franchise agreement which was entered into by the two companies for the purpose of earning income from a hotel business. He went on to find that if the purpose of making the settlement was instead relevant, that purpose was to allow the taxpayer and her husband "to continue carrying business in the motel industry" (para. 23) and that although the settlement also preserved the assets to the corporations, this was a secondary purpose.