Realco will pay a stock dividend consisting of Class F preferred shares, thereby reducing its accumulated profits and safe income attributable to its common shares by the amount of the dividend. Realco will then use the proceeds of a bank loan (as well as of the sale of marketable securities and of cashing in term deposits) to redeem the Class F preferred shares.
Ruling respecting the deductibility under s. 20(1)(c)(i) of the interest on such loan.