The taxpayer's wife ("Jordanna") borrowed $562,500 from the Bank of Montreal to fund the purchase of shares of a family company from the taxpayer for $562,500. A day later, the taxpayer and Jordanna borrowed, on a joint and several basis, $562,000 from the Bank secured by a mortgage on a new personal residence that they had just purchased, with the proceeds of that loan being used to pay off the loan the Bank had made to Jordanna. The taxpayer used the share sale proceeds to pay the vendor of the residence. The taxpayer filed his return on the basis that the inter-spousal rollover applied to the share sale and that s. 74.1(1) attributed to him the loss sustained by Jordanna resulting from the deduction of the interest expense on the mortgage loan from the dividend income she received on her purchased shares.
Before going on to find that the GAAR applied to deny the deduction of the interest on the home loan, Bowman C.J. noted that if he had not reached this finding it would not have been necessary, in order to find the interest deductible, that Jordanna had paid the interest notwithstanding that the money to pay the interest came out of a joint account between her and the taxpayer, and also that Jordanna's purpose was to earn income from the shares when at the same time the purpose of the arrangement was that the income on the shares would be deemed to be the taxpayer's for tax purposes.