The taxpayer incurred substantial legal fees to defend unsuccessfully against proceedings by the Alberta Securities Commission respecting false or misleading disclosure in the financial statements of a public company for which he was the CFO. He was fined by the ASC and prohibited from trading, and six years later the Alberta Institute of Chartered accountants rescinded his professional designation.
Campbell J found that the taxpayer (who at the time of the ASC investigation earned income from employment and also looked to earning gains from private placements) could not deduct the legal and professional fees in computing income from a business (namely, chartered accountancy as an alleged source of income), as the two were not substantially connected. She stated (at para. 54):
In both Leduc and in the appeals before me, the professional licenses were in no immediate risk at the time the expenses were incurred, despite the possibility that failure to defend the allegations could lead to future disciplinary action that had the potential of removing the professional designations.
And at para. 48:
[T]he Fees ... arose due to his conduct and actions in the capacity of President and director ... [and] were not incurred as a result of his business activities as an accountant.