The taxpayer purchased an interest in seismic data for $100,000, paying $15,000 in cash and $85,000 via a promissory note.
He deducted the full amount as a Canadian exploration expense under the Income Tax Act.
The Minister reassessed, arguing the note was a contingent liability and the transaction was not at arm's length.
The Supreme Court of Canada held that the liability under the promissory note was absolute, not contingent, because the obligation to repay came into existence immediately, even though the debt was limited recourse.
The Court also restored the trial judge's finding that the parties were dealing at arm's length.
