Canada v. Canadian Helicopters Ltd., 2002 DTC 6805, 2002 FCA 30 -- summary under Subparagraph 20(1)(c)(i)

The taxpayer borrowed money from a financial institution. It on-lent $8.95 million of the borrowed funds on an interest-free basis to its parent ("Holdings") and Holdings, in turn, on-lent the funds on an interest-free basis to the parent of Holdings ("CHC") which used those funds to purchase from an arm's length vendor shares of a company ("Viking") in a similar business. Malone J.A. found that the Tax Court Judge had correctly found that interest on borrowed funds that are used directly for an ineligible use (here an interest-free loan) nonetheless may be deductible in exceptional circumstances. Here, the course of action was intended to result in benefits to the taxpayer including the earning of significant management fees and the transfer to it of operations of Viking. Interest on the $8.95 million borrowing was deductible.