The Taxpayer, which for a number of years had gone without paying interest on its Notes, mostly had not deducted the amounts of the accrued but unpaid interest (which remained unpaid). However, in its return for the year preceding that of implementation of a Plan of Compromise, the Taxpayer added such amounts to its non-capital losses at the beginning of the year.
CRA indicated, in light of the requirement in s. 20(1)(c)(i) that only interest paid or payable in respect of the year may be deducted in that year, pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property, the Taxpayer could not deduct the total unclaimed interest expense in the described year, it could request adjustments in respect of the unclaimed interest deductions for the preceding years, as there were non-capital losses in those years that were utilized in the year of the compromise.