The taxpayer claimed deductions for interest paid on loans initially contracted to purchase real property and shares in a company.
By the time the deductions were claimed, the property had been sold and the company had gone bankrupt.
The Deputy Minister of Revenue disallowed the deductions.
The Supreme Court of Canada allowed the Deputy Minister's appeal, holding that the deductibility of interest depends on the current use of the borrowed funds and presupposes the existence of a source of income.
Because the properties were sold and the company was bankrupt with no prospect of resuming activities, the sources of income had ceased to exist, and the interest was no longer deductible.
