Former Liberal minister Pierre Paradis wanted to deduct on his tax return the legal fees he paid to defend himself against allegations of sexual misconduct in 2017. He will not be able to do so, concludes the Canadian Court of tax, which decided this dispute in favor of the Canada Revenue Agency (CRA).
Posted at 5:00 a.m.
In January 2017, Pierre Paradis was the subject of a complaint by a former political employee for sexual misconduct. He resigned from his post as Minister of Agriculture in the Couillard government, but remained a deputy. Six months later, the Director of Criminal and Penal Prosecutions (DPCP) decided not to lay criminal charges in this case, considering that he was not “reasonably convinced of being able to establish the guilt of this person”. Mr. Paradis did not stand for re-election in 2018, after having been a Liberal MP for Brome-Missisquoi from 1980 to 2018 (he sat as an independent MP from January 26, 2017 to August 16, 2018, before returning to the Liberal caucus) .
Pierre Paradis wants to deduct his attorney’s fees of $37,055.91 paid “in connection with his defense against the allegations” of sexual misconduct brought against him, according to Mr. Paradis’ notice of appeal to the Canadian Court of tax. The federal tax office refuses him these deductions.
Tax laws allow employees/office holders (for example, a Member of Parliament) to deduct attorneys’ fees spent in order to establish a right to a salary or in order to recover their salary owed by their employer. The deduction is also possible for a retirement allowance or a pension plan benefit.
But in this case, Mr. Paradis did not pay these legal fees to be entitled to his remuneration as a member paid by the National Assembly or to recover it. He continued to be paid as a member of the National Assembly (at least $93,827 per year in 2017) during the police investigation and the study of the file by the DPCP.
His argument in court? From a tax point of view, Mr. Paradis says he incurred these legal fees of $37,055 “in order to preserve his seat as a member of the National Assembly and the remuneration attached to this office”, he writes in his notice of appeal. The ex-minister argues that his remuneration as an MP (including his transition allowance) had become “precarious” and “uncertain” in the context of a police investigation. If he had been convicted of a criminal offense, he would not have been able to be an MP or receive his remuneration, he says. Mr. Paradis specifies that his legal fees were not reimbursed by the National Assembly.
The CRA objects to the deduction of Mr. Paradis’ attorney fees on the grounds that they were not incurred to establish a right or collect an amount owed to him as salary or retiring allowance related to his office of deputy.
The Tax Court of Canada last month dismissed Mr. Paradis’ appeal, ruling in favor of the CRA. The judgment was rendered orally during the hearing. There are no written reasons.
“No charges [criminelle] has not been worn […] after investigation,” Pierre Paradis said in a written statement emailed to The Press. He specifies that he “collaborated in the investigation, which caused him expenses. These expenses are routinely reimbursable by the government (or otherwise potentially deductible) for representation costs if charges are laid. However, since the costs were incurred without ever being charged, the question of deductibility is less clear. It is therefore in complete transparency and via the mechanisms provided that Mr. Paradis validated this aspect with the tax authority. He obviously accepts any decision, and cannot comment on the technical aspects of the file since it is not his specialty”.
The CRA did not comment on Mr. Paradis’ case. As this was a case under informal procedure, there is no appeal possible.
Criminal attorney fees are not deductible
In his written statement sent to The PressMr. Paradis believes that his legal fees would have been “potentially deductible” or reimbursed by the National Assembly if criminal charges had been brought against him.
However, tax laws generally do not allow an employee/office holder (for example, a Member of Parliament) to deduct legal fees in the event of the filing of criminal charges, says Annick Provencher, professor of tax law at the Montreal university. The deduction of attorney’s fees is limited to situations to establish his right to a salary, a retiring allowance or a retirement benefit from his employer or to recover these sums.
This deduction does not apply in the context where an employee says he wants to protect his job against criminal charges.
Annick Provencher, professor of tax law at the University of Montreal
In general, criminal lawyer fees are not tax deductible, recalls the professor.
Over the years, the IRS has allowed the deduction of criminal attorneys’ fees in (very) rare exceptions where a taxpayer with business income had to defend himself against criminal charges to safeguard the business’s ability to earn an income.
As for Mr. Paradis’ other assertion that his legal fees would have been reimbursed by the National Assembly if charges had been laid, it should be noted that under the law, the National Assembly reimburses the costs of counsel for a Member of Parliament in criminal matters on two conditions: 1) he was acquitted or the charges were withdrawn and 2) the criminal charges related to “an act which he did or omitted to do in the exercise of his duties” as a deputy. The Bureau of the National Assembly takes the decision after having obtained an opinion from the jurisconsult.