Case Review: The TDL Group Co. V. The Queen

INTRODUCTION

Interest deductibility pursuant to paragraph 20(1)(c) of the Income Tax Act¹ (the "Act") is a dynamic and evolving area of the law, due to CRA Policy and judicial interpretation of the provision. Much of the analysis focuses on identifying the use and purpose of borrowed money, pursuant to subparagraph 20(1)(c)(i) of the Act. In the recent decision of The TDL Group Co. v. The Queen,² ("TDL Group") the Tax Court of Canada ("TCC") examined what evidence is required to satisfy whether borrowed funds were used for an income earning purpose, and specifically within the context of loans from a parent corporation used to acquire additional common shares in a U.S. wholly-owned subsidiary. CRA Policy (IT-533) normally considers interest costs in respect of funds borrowed to purchase common shares to be deductible; however, this is on the basis that there is a reasonable expectation, at the time the shares are acquired, that the common shareholder will