Settlement Payments Ordered Under A Statute May Not be Deductible As A Business Expense

1.   Introduction

In Hanmar Motor Corporation v. The Queen,¹ the Tax Court of Canada upheld the Minister of National Revenue's (the "Minister") decision to disallow the deduction of a settlement payment made under the Employment Standards Act of Ontario (the "ESA").² The Minister's decision was upheld because Hanmar Motor Corporation (the "Appellant") was required to make the settlement payment under a provincial statute, as an incident to its ownership of shares in a related business and not for the purpose of gaining or producing income.

2.   Facts

The Appellant was a manufacturer of motor homes. At the relevant time, its sole shareholder was Jeffrey Hanemaayer, and its directors were Jeffrey and his father, Jacobus Hanemaayer. Jeffrey Hanemaayer and Jacob Hanemaayer owned all the shares of Community Expansion Inc. ("CEI"), a real estate holding company, and 798894 Ontario