The shareholders of Opco loaned it money to permit it to acquire inventory. The loans were unsecured and bore interest at 10% yearly. The Court of Quebec, in light of the Quebec equivalent of section 67 of the ITA, denied the deduction of interest in excess of 7.89% yearly, which was the bottom end of a range of reasonable rates for similar loans provided by the taxpayers’ own expert (Deloitte). Neil Armstrong summary of Gervais Auto Inc. v. Agence du revenu du Québec, 2019 QCCQ 5894.
If the technical requirements of the Income Tax Act (Canada) are met, a taxpayer can mortgage her house to her RRSP and then deduct the interest on the loan from the RRSP, if the loan proceeds are on-loaned to Opco. See CRA technical interpretation 2015-0601211E5 dated June 1, 2016, summarized in Georgina Tollstam, “Deduction for Interest Paid to RRSP on Mortgage Loan” Canadian Tax Highlights 24:11 (Nov 2016).
Per Lyons J in Kokai-Kuun Estate v R, 2015 TCC 217: a taxpayer cannot add to the cost of vacant land interest and property taxes paid in respect of the land where it was acquired for “investment” purposes but never rented or used in a development business (that is, the land was acquired to realize a capital gain).
The deceased taxpayer’s representative had also tried to claim the benefit of a capital loss supposedly realized in a prior year in respect of amounts the taxpayer had advanced to a corporation. Justice Lyons wasn’t entirely happy with the evidence presented regarding the amounts advanced, but she found that the fact the taxpayer had never claimed the loss or, more importantly, filed an election under paragraph 50(1)(a) in respect of the bad debt was fatal to the claim. She pointed out that the taxpayer’s representative might have applied under the taxpayer relief provisions to permit the late-filing of the election (per subsection 220(3.2) and paragraph 600(b) of the Regulations). The representative hadn’t done so, however, and the Tax Court did not have the jurisdiction to entertain such a request.