The taxpayer guaranteed a loan which the CIBC made to its parent corporation ("Trennd"), for on-lending to various corporations within the group including the taxpayer. When the CIBC called on its guarantee, the taxpayer used borrowed funds to pay $1.7 million to the CIBC and received a non-interest bearing promissory note from Trennd (1979).
Linden J.A. found that the interest on the borrowing of $1.7 million was non-deductible because, applying the current-use test, the borrowed money was used to pay off the Trennd debts to the CIBC.
In his concurring reasons for judgment, Robertson J.A. found that the concession of the Minister in IT-445 - that interest paid on funds borrowed to honour guarantees given for adequate consideration, may be deducted from income even though the use of such funds has only an indirect effect on the taxpayer's income-earning capacity - had a legal foundation. However, here the consideration (in the broad sense of the word) received by the taxpayer in return for granting the guarantee was inadequate and the granting of the guarantee was intended to facilitate the income-earning capacity of the principal debtor (Trennd) and not the guarantor (the taxpayer).