Words and Phrases - "bonds, debentures, securities or other indebtedness"

The taxpayer, which was a non-resident-owned investment corporation that invested in shares and bonds, sought to deduct interest paid by it on a significant bank overdraft. That deduction was denied by s. 70(1) of the pre-1972 Act (now, s. 133(1)(a)), which provided that "no deduction shall be made in respect of interest on its bonds, debentures, securities or other indebtedness."

Thurlow J. accepted (at p. 1153) that the indebtedness referred to in the quoted statutory phrase "ordinarily at least is indebtedness arising from the acquistion of capital assets or the raising of capital to be employed in its business rather than indebtedness of the kind incident to and incurred in the day-to-day trasactions of the business." Here, however, the taxpayer had not established that it "was engaged in a business as opposed to merely holding investments" (p. 1152), and even if it had a business, it would not have established that "the financing of its transactions was itself an integral part' of such business (p. 1154). In particular, "the proper inference to draw [was] that the moneys borrowed on the overdraft were obtained and employed not as mere temporary accommodations incidental to the carrying on of a business of which the obtaining of such accommodations was an integral part but were in truth moneys obtained and employed as additional circulating capital in the business" (p. 1154). Accordingly, the interest was not deductible.