The taxpayers owed approximately $2.7 million on mortgage loans including substantial amounts of interest that previously had been agreed to be deferred and added to the amount of the mortgage. The mortgage loan was restructured so that the taxpayers became obligated to make annual minimum interest payments of $20,000 for each of the first 15 years following the restructuring and had the right at any time within the 15-year period to discharge all amounts on the loan by the payment of the sum of $100,000 plus all of the unpaid interest payments of $20,000 per annum. The restructuring of the loan was stated to be in the form of a refinancing of a portion of the previous mortgage debt on the terms indicated above, with a statement that these amendments did not have the effect of discharging or novating the previous mortgage obligation. For the taxation years in question following the restructuring, the taxpayers sought to deduct unpaid interest amounts that continued to be added to the original amount of the mortgage loan, namely, $154,373, $160,254 and $168,782. In finding that these amounts were not deductible by the taxpayers in computing their income, so that the taxpayers were only entitled to deduct the $20,00 annual interest payments actually made by them, V.A. Miller, J. found that these deferred interest amounts were not "payable". She stated (at para. 29):
"I interpret the word 'payable' in paragraph 20(1)(c) to mean that the interest must be 'required to be paid' or 'due' as opposed to owing. Interest is 'payable' when there is an obligation to pay in the present as opposed to an obligation to pay in the future'."
She also indicated (at para. 38) that the amount of such interest that the taxpayer sought to deduct was not "reasonable", stating, (at para. 38):
"How could the amount of 'interest' be 'a reasonable amount in respect thereof' when it was not an amount that was paid nor was it an amount that had to be paid in the years under appeal?"