Parthenon Investments Ltd. v. M.N.R.
A-514-93
MacGuigan J.A.
30/5/97
6 pp.
In 1984 appellant declaring dividend to parent company, Pacific Canada, Canadian resident corporation-Payment by delivery of promissory note in amount of dividend-Parent company assigning promissory note to another of its wholly-owned subsidiaries in partial settlement of debt-Appellant undertaking to "repay" note and accrued interest on demand-MNR disallowing appellant's deductions of interest on promissory note on ground not within Income Tax Act, s. 20(1)(c)-S. 20(1)(c) permitting deduction of amounts wholly applicable to amount paid pursuant to legal obligation to pay interest on borrowed money used to earn income from business or property-Tax Court holding no evidence appellant borrowed money to be used for purpose of earning income from business or property-Appeal allowed in part-Tax Court correctly holding appellant not borrowing money on which could deduct interest as required by s. 20(1)(c)-S. 20(1)(c) requiring for interest to be deductible must be paid pursuant to money borrowed by taxpayer: The Queen v. MerBan Capital Corporation Ltd. (1989), 89 D.T.C. 5404 (F.C.A.)-No such borrowing from "outside the family"-Promissory note merely evidence of debtor-creditor relationship-Alternative argument interest on promissory note deductible since entitlement to receive declared dividend was property acquired also without evidentiary foundation-Promissory note issued to pay dividend rather than to acquire property-Parties agreeing Tax Court should have decided whether appellant during taxation years under appeal Canadian-controlled private corporation within s. 125(7)(b)-S. 125(7)(b) defining "Canadian-controlled private corporation" as private Canadian corporation other than corporation controlled by non-resident, public corporation(s), any combination thereof-All of appellant's voting shares owned by Pacific Canada, voting shares of which owned by Pacific International Equities Inc., American corporation, in turn owned by two Canadian resident corporations-Les Produits Alimentaires Anco (1961) Inc. v. The Minister of National Revenue (1979), 79 D.T.C. 573 (T.R.B.), wherein held enough to exclude Canadian corporation, that controlled at any stage by non-resident corporation, not followed-Cannot divide up notion of de jure control-Control herein resting ultimately in hands of Canadian residents-Interpretation in terms of ultimate control not adding "ultimately" to otherwise rule of plain meaning, but emphasizing concept of control necessarily having latent within it notion of ultimate control-Matter returned to Minister for reassessment on basis appellant Canadian-controlled private corporation throughout taxation years under appeal-Income Tax Act, S.C., 197071-72, c. 63, ss. 20(1)(c), 125(1) (as am. by S.C. 1984, c. 45, s. 40), (7)(b) (as am. idem).