Macmillan Bloedel Ltd. v. The Queen, 90 DTC 6219 (FCTD)

Expert accounting evidence was found to be relevant to the application of s. 20(1)(e).

After the taxpayer had arranged to borrow U.S. $75 million through an issuance of debentures, it entered into forward hedging contracts for the future delivery by it of U.S. dollars at specified conversion rates. The difference between the Canadian-dollar equivalent of the taxpayer's U.S.-dollar borrowing, measured at the spot rate of exchange at the time of closing the issuance of the debentures, and the Canadian dollars (net of a fee charged by The Royal Bank for extending the forward contracts) received (around the time of closing) by the taxpayer under the forward contracts, was held to be a deductible expense under s. 20(1)(e). Collier J.,in accepting the evidence of the taxpayer's expert accountant, stated (at p. 6225):

[W]hen one carefully analyzes the situation, there are, from a business and accounting view, two transactions. There was a loan obtained by the plaintiff in the United States. When the funds became available, there was another transaction: the obtaining of Canadian funds. The loss on the second transaction was, in my view, an expense incurred in the course of borrowing the U.S. funds."

Interest on employee advances, overdue trade accounts, loans to customers, and working capital advances to subsidiaries, gave rise to income from the taxpayer's logging operations, whereas money on short-term deposits constituted income from a separate non-logging source.

Collier J. was satisfied that mortgages or advances made to assist employees in moving were made as part of the taxpayer's logging operations, and also regarded it as "a perfectly normal business transaction to charge interest on overdue accounts" to customers of its logging operations. Similarly, loans or advances to customers, and loans to subsidiaries to provide working capital, were made as an integral part of the taxpayer's operations in order to facilitate the marketing of its products. Therefore, interest from the above sources constituted income from its logging operations. However, funds from its logging operations, when put on short-term deposits, gave rise to a new source of income that was not from its logging operations.