http://decision.tcc-cci.gc.ca/site/tcc-cci/decisions/en/item/63240/index.do 
Lacroix v. The Queen[1] (January 10, 2014) involved appeals for the 2007, 2008, 2009 and 2010 taxation years concerning claims for the deduction of legal fees incurred by the taxpayer, the bulk of which related to the bankruptcy of a corporation of which he was formerly a director:
3. The legal fees claimed by Mr. Lacroix were incurred in three separate disputes;
4. The first dispute involved Mr. Lacroix in his capacity as shareholder and creditor of Canadevim Ltée against trustee Verdier in a challenge of the bankruptcy of Canadevim Ltée, that company having contested its forced bankruptcy until the Court of Appeal rendered a judgment confirming it;
5. The second dispute involved Mr. Lacroix in his capacity as representative of Canadevim Ltée under subsection 38(1) of the Bankruptcy and Insolvency Act against Her Majesty the Queen in the context of an appeal against a GST/QST assessment made in respect of Canadevim Ltée for the period from May 1, 1998, to October 31, 2001;
6. The third dispute involved Mr. Lacroix and Her Majesty the Queen in the context of an appeal of a tax assessment made in respect of Mr. Lacroix for the 2007 taxation year;
7. With respect to the 2007 taxation year, the legal fees claimed for the purposes of this dispute are in the amount of $19,305.66, which can be broken down as follows:
a. $1,224.96 for the appeal of the GST/QST assessment made in respect of Canadevim Ltée;
b. $8,422.37 and $9,658.83 for the challenge of the bankruptcy of Canadevim Ltée. More specifically, these fees were incurred in connection with a motion to dismiss appeal, a provisional execution order, various appeals to the Court of Appeal and a challenge of the bankruptcy (see paras. 96-104 of this agreement for more details);
8. With respect to the 2008 taxation year, the legal fees claimed for the purposes of this dispute are in the amount of $15,312.27, which can be broken down as follows:
a. $2,333.41 for the appeal of the GST/QST assessment made in respect of Canadevim Ltée;
b. $12,464.01 for the challenge of the bankruptcy of Canadevim Ltée (see paras. 107-110 of this agreement for more details);
c. $514.85 for the objection to the Notice of Assessment of tax made in respect of Mr. Lacroix for the 2007 taxation year. This claim is not challenged by the respondent;
9. With respect to the 2009 taxation year, the legal fees claimed for the purposes of this dispute are in the amount of $11,966.05, which can be broken down as follows:
a. $9,615.05 and $1,625.40[10] for the appeal of the GST/QST assessment made in respect of Canadevim Ltée;
b. $255.29 and $470.31 for the objection to the Notice of Assessment of tax made in respect of Mr. Lacroix for the 2007 taxation year. This claim is not challenged by the respondent;
10. With respect to the 2010 taxation year, the legal fees claimed for the purposes of this dispute are in the amount of $28,126.65, which can be broken down as follows:
a. $17,097.53, $4,512.03 and $1,327.01 for the appeal of the GST/QST assessment made in respect of Canadevim Ltée;
b. $5,190.08[16] for the challenge of the bankruptcy of Canadevim Ltée (see para. 111 of this agreement);
[Footnotes omitted]
The appellant’s claim for a deduction had a twofold basis:
[4] In the Notices of Appeal, the appellant essentially claimed that the fees he had incurred were allowable expenses because they were incurred in connection with normal contracts incidental and necessary to the earning of income from a business. I note that, in his Notices of Appeal, the appellant cites sections 2 and 5 of Interpretation Bulletin IT‑99R5 (Consolidated) in support of his position.
[5] In oral argument, the appellant radically changed his position and now submits that the fees were incurred, not for the purpose of earning income from a business, but rather for the purpose of earning income from property. In this respect, the appellant submitted that the fees claimed were incurred in order to recover a $1.2 million claim, with the ultimate purpose of receiving dividends from Canadevim Ltée, namely, income from property. The appellant submitted that, at the time he had incurred the fees, the $1.2 million claim was recoverable, which could have resulted in a retroactive annulment of the bankruptcy of Canadevim Ltée. I note from the outset that the appellant has not explained how the fees (incurred in the course of an appeal from a GST/HST assessment made in respect of Canadevim Ltée for the period from March 1, 1998, to October 31, 2001) were incurred for the purpose of earning income from property.
[6] In the alternative, the appellant is claiming the fees as a business investment loss under paragraph 39(1)(c) of the Income Tax Act (the Act). Essentially, the appellant argues that, on December 7, 2006, the Superior Court of Quebec, relying on section 38 of the Bankruptcy and Insolvency Act (the BIA), authorized him to continue his challenge in the appeal of a GST/HST assessment issued against Canadevim Ltée for the period from May 1, 1998, to October 31, 2001. The appellant is therefore of the view that he financed Canadevim Ltée by challenging the assessment on its behalf, making him a creditor of Candevim Ltée with a claim against it, a claim that has turned out to be unrecoverable
The court rejected the proposition that the fees were incurred for the purpose of earning income from property:
[11] I am of the view that the fees incurred by the appellant were not deductible, for the following reasons:
(i) First, I note that the appellant radically changed his position, in that he is now alleging that the fees were incurred not for the purpose of earning income from a business (as alleged in the Notices of Appeal), but instead for the purpose of earning income from property. This change in course, in itself, reveals something of the lack of seriousness of the appellant’s position, which raised serious doubts in my mind as to the appellant’s claimed intention, about which, moreover, no evidence was filed.
(ii) It should be noted that in order for the appellant to be able to deduct his incurred fees under subsection 9(1) of the Act, he must first determine whether he has a source of income, in this case from property. How can he claim, in this case, that he had incurred costs for the purpose of earning income from property when, at the time the fees were incurred, Canadevim (the supposed source of income from property) was bankrupt? In other words, the appellant in this case did not have a source of income from property at the time he incurred the fees because Canadevim was bankrupt at that moment. In any case, even if he had had a source of income from property, I would be of the view that the fees could not be deducted because of the prohibition set out at paragraph 18(1)(b) of the Act. In my opinion, these fees constituted payments on account of capital. It is clear from the evidence filed that the fees were incurred in order to preserve an asset, in this case for the purpose of preventing the bankruptcy of Canadevim Ltée. In other words, the appellant was fighting for the survival of his source of income. In my view, the appellant incurred the fees to preserve an enduring benefit.
[12] I am also of the view that the fees (incurred in the context of an appeal against a GST/HST assessment of Canadevim Ltée for the period from March 1, 1998, to October 31, 2001) are not deductible under paragraph 60(o) of the Act, given that they were not incurred in prosecuting an appeal in relation to an assessment under the Act.
The court similarly rejected the appellant’s bad debt argument:
[16] In any event, even if the appellant had obtained, after incurring such fees, the status of creditor, I am of the view that he would not have been entitled to claim in relation to this alleged bad debt a business investment loss under paragraph 39(1)(c) of the Act because he did not advance funds to a Canadian-controlled private corporation that was a small business corporation. I note in this respect that the evidence demonstrates that the fees were incurred between 2007 and 2010 and that Canadevim Ltée had been bankrupt since 2003. Therefore, at the time the advances were allegedly made, Canadevim Ltée was not a small business corporation.
Accordingly the appeals (with the exception of the small amounts to which the Crown consented under 8. c. and 9., b. above) were dismissed with costs.
[1]2013 TCC 312.