The corporate group of which the taxpayer was a member operated a cash pooling arrangement with a bank (styled a "Mirror Netting Agreement" or "MNA"). By virtue of this arrangement, positive cash balances of the taxpayer (which engaged in a warehousing business) were swept into a pooling account, with the effect that a total of $2,306,163 was advanced by the taxpayer to a group company ("CWI") which was in financial difficulty.
Bowman J. accepted that amounts that became owing to the taxpayer by CWI under the MNA qualified as loans, and stated (at para. 22) that "where an advance is made on the understanding of both parties that there is an obligation to repay it either on demand or at some predetermined date it becomes a loan." Before concluding that the taxpayer was not entitled to a deduction under the post-1993 version of s. 20(1)(p)(ii) as it was not in the business of lending money, he stated (at para. 25):
The ordinary business of the appellant is warehousing, not lending money to other companies in the group. …[T]he word "ordinary"…implies that the business of lending money be one of the ways in which the company as an ordinary part of its business operations earns its income…[and] that the lending of money be identifiable as a business. …[T]he MNA… is an incident of its business. The appellant's argument equates the words "whose ordinary business includes the lending of money" to the words "in whose business the lending of money is an incident." I do not think the two expressions cover the same territory.