Dalhousie Journal of Legal Studies


The deductibility of interest expense under the Income Tax Act has been permitted generally where borrowed funds were used, whether directly or indirectly, for the purpose of earning income from business, subject to certain restrictions. The Bronfman Trust case, decided in 1987, caused an upset in the tax community by requiring that the borrowed funds be tracked to an eligible use, and by criticizing the indirect use approach. Since the Bronfman Trust decision, Revenue Canada, Taxation, has attempted to re-establish the pre-Bronfman Trust rules on interest deductibility through various Notice of Ways and Means Motions. It was promised that legislation would be enacted to confirm past administrative practice concerning interest deductibility, and to provide new rules with respect to future borrowings. This paper reviews the 20 December, 1991 draft legislation in an attempt to determine whether these uncertainties have been addressed, and whether new concerns have been raised.

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