19 December 2000 Internal T.I. 2000-0049197 F - DEDUCTIBILITE DES INTERETS -- summary under Subparagraph 20(1)(c)(i)

Regarding the deductibility of interest expense on a loan to purchase mutual fund units that gives rise only to capital gains on disposition, the Directorate indicated that “in general and barring exceptional circumstances, interest on money borrowed to acquire common shares is deductible, taking into account that the potential return to the shareholder may exceed the cost of borrowing,” but that there must be a source of income (not including capital gains) and that “interest on money borrowed and used to acquire common shares or mutual fund units may not be deductible where there is no expectation of profit from the investment.”