McLarty – Tax Court of Canada finds that interest equal to 10-times the income generated is deductible

Consistently with Ludco, Favreau J found that interest was deductible on a limited recourse promissory note in years where the revenue generated from the related purchase (seismic data) was only 10% of the accruing interest.

He also stated obiter that participants who, contrary to joint venture terms which required every party to purchase its interest for its own account, acquired their interests in the seismic joint venture through nominees, were not entitled to deduct their expenditures.  This is dubious.  If their investment had been profitable, would the income have been exempt?

Neal Armstrong.  Summaries of McLarty v. The Queen, 2014 DTC 1162 [at 3556], 2014 TCC 30 under s. 20(1)(c), General Concepts - Illegality, s. 67, and General Concepts – Tax Avoidance.