Two Ontario partnerships of which the taxpayers were members paid for research to be carried out on their behalf by a Brazilian research corporation, in part, by issuing notes to the research corporation denominated in Brazilian currency and payable in annual installments commencing seven years hence.
The amount of the expenditures made by the partnerships should be determined, in light of generally accepted accounting principles on the basis of substantially discounting the value of the notes given that the interest rates borne by the notes were substantially lower than prevailing Brazilian interest rates (which, in turn, reflected high rates of inflation).