DYK - Interest can be deductible where the earning income is only an ancillary purpose for the use of the funds. But, the rules can be complex…

A June 14, 2019 Tax Court of Canada case (Black vs. H.M.Q., 2016-2496(IT)G) addressed deductibility of interest on funds borrowed by the taxpayer from an unrelated third party (Qco) and advanced to a corporation controlled by the taxpayer (Opco). While the facts were complex and unusual, the case decision illustrates several principles related to interest deductibility, particularly whether the borrowed funds were used for the purpose of earning income. The taxpayer argued that his loan to Opco was interest-bearing and, therefore, had been advanced to earn income. CRA challenged this argument, in part, because there was no written documentation of this loan.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 456.