CRA indicated that where a corporation borrows money from an arm's length financial institution to repay a non-interest bearing loan that it had used to earn income from an active business:
[T]he money borrowed from the financial institution by the corporation would be deemed to have been used by the corporation for the purpose for which the previously borrowed money was used by virtue of subsection 20(3). Thus, to the extent that the repaid loan was used for the purpose of earning income from a business or property, the interest on the money borrowed from the financial institution would be deductible under subparagraph 20(1)(c)(i).