The appellants acquired the debt of a failing company from a non-taxable provincial board.
The debt included significant accrued interest, payment of which had been suspended for two years.
Upon transfer, the appellants received partial payment of this interest, included it in their income, and claimed a deduction under s. 20(14)(b) of the Income Tax Act.
The Minister disallowed the deduction because the tax-exempt board had not included the interest in its income under s. 20(14)(a).
The Supreme Court of Canada held that the transaction met the plain meaning of s. 20(14) and was not a sham.
The Court ruled that a transferee's right to a deduction under s. 20(14)(b) is not conditional on the transferor including the amount in income under s. 20(14)(a).
