Legal expenses incurred by the taxpayer in defending against a derivative action that was based on his allegedly having caused the corporation to have paid him excessive remuneration, were not deductible. Sharlow, J.A. stated (at para. 8):
Paragraph 8(1)(b) is not intended to permit legal expenses to be deducted when they are incurred in litigation involving a claim for damages involved in disputes other than those arising from the terms of employment, merely because the Defendant's entitlement to a particular remuneration is an element of the claim.
She also stated that "it is an open question whether paragraph 8(1)(b) also applies to legal expenses incurred by an individual who is being sued by an employer or former employer for reimbursement of an over-payment of salary or wages." (Para. 8.)