The appellant borrowed $1 million to purchase shares, later transferring them to a holding company in a section 85 rollover transaction for replacement shares with a fair market value of $1,000.
The Minister reassessed the appellant, limiting his interest deduction under section 20(1)(c)(i) of the Income Tax Act to the interest on $1,000.
The Supreme Court of Canada allowed the appeal, holding that the interest deduction is based on the amount of the original loan, not the value of the replacement property, provided the entire proceeds of disposition are reinvested in an eligible use property.
