Canada v. Grenier
T-1193-92
Pinard J.
3/2/98
11 pp.
Appeal from Tax Court of Canada decision allowing in part defendant's appeal for 1987 taxation year, by allowing deduction of interest paid on part of loan he took out on March 24, 1986-On July 5, 1985, defendant obtained loan of $65,625 from National Bank of Canada, secured by hypothec on his principal residence in Rosemère, Quebec-Advanced $65,625 to Argus Mazda as director's advance-On March 24, 1986, defendant had obtained loan from Royal Bank of Canada for $151,700 to purchase property in Gatineau, Quebec-For his 1987 taxation year, defendant claimed deduction for $15,360.32 paid to Royal Bank as interest on loan taken out on March 24, 1986-T.C.C. allowed deduction of interest paid on $65,625, part of that loan-Issue whether interest paid by defendant on $65,625, comprising part of $151,700 he borrowed on March 24, 1986, may be deducted from his taxable income-In Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32, Supreme Court of Canada pointed out fundamental statutory requirement that "for interest payments to be deductible, borrowed money must be used for circumscribed income-earning purposes"-Current use, not original use, of borrowed money determines eligibility for deduction-Reasoning of Supreme Court in Bronfman Trust supports taxpayer's position-Hypothecary loan of $65,625 on defendant's principal residence enabled him to use that money to earn income from his new business in Hull-There are exceptional circumstances in which, on a real appreciation of taxpayer's transactions, appropriate, because of indirect effect on his capacity to earn income from his business in Hull, to allow him to deduct interest on funds borrowed for ineligible purpose, purchase of his new residence in Gatineau-Defendant's real purpose in using funds in question: to earn income-Appeal dismissed.