Interest Deductibility: Uncertain In Light Of Lipson?

The Income Tax Act (Canada) distinguishes between interest paid or payable by taxpayers on account of a business venture and a personal venture. Essentially, interest expense incurred on a business loan will generally be deductible to the taxpayer or, in some cases, may be capitalized. Contrast this treatment to personal loans, where interest on such loans is not deductible. As such, it is not hard to imagine the incentive to develop tax plans and to organize one's affairs in a manner which qualifies as much interest expense as possible as tax deductible.

Singleton¹, prior to Lipson², was the seminal case for this type of tax planning. In the Singleton case, the taxpayer was a partner of a law firm in Vancouver, B.C. The taxpayer had a significant amount of equity built up in his partnership account. In order to purchase a house, the taxpayer accessed his partnership equity. The taxpayer then borrowed money to replace his depleted partnership equity. The Canada