Debt owing to the taxpayer following an asset sale provided that interest may be added to the principal of the debt, which is what occurred. In finding that the capitalized interest was not a separate loan of money, so that the interest thereon could only be deducted under s. 20(1)(c) rather than (d), CRA stated:
The facts submitted did not show that there was an actual transfer of money, and that the “mere statement that an amount of interest was added to the principal of the original debt does not seem to us sufficient to conclude that there was a … [fresh] loan between the parties.”
In also finding that no Pt. XIII tax had been triggered, CRA applied Quebec Cartier Mining to conclude that the taxpayer did not pay the increased and capitalized interest on an annual basis and did not credit the vendor with such interest.