3 March 2006 Internal T.I. 2005-0151871I7 F - Déduction des intérêts -- summary under Subparagraph 20(1)(c)(ii)

According to the TSO, the taxpayer paid a dividend by issuing interest-free notes, and then refinanced those notes with interest-bearing notes. Headquarters considered that the interest on the replacement notes was not deductible because it did not replace borrowed money nor were they used to acquire property.