What is the test for deducting legal fees under Section 8(1)(b) of the Income Tax Act?

Canada (Federal), Canada

The following excerpt is from Barkley v. Canada, 2021 FCA 5 (CanLII):

The underlying premise in the appellants’ argument that the legal fees in question are deductible is that paragraph 8(1)(b) of the Act permits a taxpayer, in computing his or her income from an office or employment, to deduct an amount for legal expenses incurred to defend a claim that such taxpayer was overpaid. Whether this paragraph would permit such a deduction is a question of law, for which the standard of review is correctness (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235). If, correctly interpreted, this provision does not permit such a deduction, then these appeals must be dismissed. The analysis in these reasons will focus on the interpretation of this provision.

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