In the course of rejecting a submission that a borrowing in New Zealand dollars by the taxpayer at 15.40% interest should be treated (in light of the hedging arrangements of the taxpayer) as giving rise to an interest deduction only to the extent of the 9.1% rate that a U.S.-dollar borrowing would have yielded, McLachlin J. stated (at p. 5676):
"First, this Court has never held that the economic realities of a situation can be used to recharacterize a taxpayer's bona fide legal relationships. To the contrary, we have held that, absent a specific provision of the Act to the contrary or a finding that they are a sham, the taxpayer's legal relationships must be respected in tax cases. Recharacterization is only permissible if the label attached by the taxpayer to the particular transaction does not properly reflect its actual legal effect ... . Second, it is well established in this Court's tax jurisprudence that a searching enquiry for either the 'economic realities' of a particular transaction or the general object and spirit of the provision at issue can never supplant a court's duty to apply the unambiguous provisions of the Act to a taxpayer's transaction."