Barejo Holdings – Tax Court of Canada takes an expansive view of what is “debt”

An offshore fund, in which the taxpayer had an interest, invested in instruments (styled as "Notes") of non-resident subsidiaries of Canadian banks. Each Note did not bear interest and provided for a payment on maturity that reflected the performance of a matching actively-managed portfolio of assets held by an affiliate of the obligor.

Boyle J found that the Notes were debt for ITA purposes notwithstanding that the offshore fund could have no idea what it would receive on maturity (including any accelerated maturity) until that day arrived, as in his view it was sufficient that there be a liquidated amount only on such maturity. This has the effect of eliminating most of the distinction between debt and various derivatives which also satisfy his basic criteria for what is debt: an amount is advanced or "credited" to acquire the investment; a liquidated amount is payable when it matures (which could be a nil amount); and there is interest (albeit of nil). In fact, he stated that "the concepts of debt and derivatives are not mutually exclusive."

Neal Armstrong. Summaries of Barejo Holdings ULC v. The Queen, 2015 TCC 274, under s. 12(11) – investment contract and Interpretation Act, s. 8.1.