A resident individual (the taxpayer) lent a sum to a Barbados borrower pursuant to a debenture contract which provided that the return was payable only on the maturity of the debenture, was equal to the return on a linked investment and specified that a portion of such return would include a taxable interest portion and a non-taxable capital gains portion. In finding that all of such return would be interest income, the Directorate stated:
The fact that the amount of interest to be paid at the end of the term of the Debenture is not expressed as a fraction or percentage of the amount lent but rather corresponds to the return generated by a particular investment does not disqualify that income as interest income (see, among others, Re Validity of Section 6 of the Farm Security Act, 1944 (Sask. ), [1947] S.C.R. 394 (S.C.C.), aff'd [1949] A.C. 110 (Prov. Ct.), Re Unconscionable Transactions Relief Act, [1962] O.R. 1103 (C.A.), and The Queen v. Sherway Centre Limited, 98 DTC 6121 (F.C.A.)). Similarly, the fact that the return on the Debenture is not payable until the end of the XXXXXXXXXX year term of the agreement is also irrelevant to the characterization of that income as interest income for purposes of the Act (see The Queen v. Sherway Centre Limited, supra).
Furthermore, such interest was required to be accrued under s. 12(4).