The International Trade Commission and the US Department of Commerce made preliminary anti-dumping rulings in 2001 against the taxpayer respecting the importing of lumber to the US. The taxpayer would not be permitted to sell its lumber in the US without a cash deposit or bond based on the preliminary rulings' estimated dumping margin of 12.58%. The taxpayer accumulated a $3,576,088 "allowance for countervailing and antidumping duties," $2,371,500 of which it invested in term deposits with the Royal Bank of Canada ("RBC"). RBC then issued a letter of credit to a US insurance company, which guaranteed payment of part of the duties.
After finding that the amount of the allowance was not deductible by virtue of s. 18(1)(a) and (e) (because the amount of the duties was not fixed until the final rulings in 2002), Angers J. concluded that term deposits with RBC were not deductible under s. 20(vv). He stated (at para. 27):
Although the funds used for the acquisition of the term deposits were mortgaged [through the letter of credit] and the use of the funds was restricted by the Royal Bank, they were still the appellant's property. Even if the appellant claims that it paid the amount of the term deposits to the Royal Bank, in fact, in only mortgaged them and even if it committed to only dispose of them with the Bank's consent, this does not amount to a transfer of property.