Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32, 87 DTC 5059, [1987] 1 CTC 117 -- summary under Paragraph 20(1)(c)

Interest on money borrowed by trustees in order to make discretionary capital allocations to beneficiaries was non-deductible. Although the trustees could have instead paid the capital allocations by liquidating income-producing assets of the trust, and in this sense an indirect purpose of the borrowing was to preserve income, the court could not ignore the direct use to which the borrowed money had been put. Otherwise, the deduction of interest on borrowings for otherwise ineligible purposes, such as the making of capital gains or the purchase of speculative properties, would be permitted for any taxpayer who owned income-producing assets. "[T]he Act requires tracing the use of borrowed funds to a specific eligible use, its obviously restricted purpose being the encouragement of taxpayers to augment their income-producing potential."