Grant v. The Queen, 2006 DTC 3071, 2006 TCC 373, aff'd 2007 DTC 5351, 2007 FCA 174 -- summary under Section 114

On December 24, 1998, the taxpayers borrowed an aggregate of approximately U.S.$1 billion from the CIBC, and lent the same sum to a U.S. subsidiary of the CIBC ("CIHI"), with the notes from CIHI being pledged to secure the borrowing from CIBC. The taxpayers ceased to be resident of Canada on December 30 1998, on December 31, 1998, the taxpayers paid accrued interest on the CIBC borrowing using the proceeds of a bridge loan, and early in 1999 the CIBC borrowing was repaid from the proceeds of repayment of the CIHI notes. In rejecting a submission on behalf of the taxpayers that 6/7 of the interest paid by them on December 31 was reasonably attributable to a period of Canadian residence and, therefore, could be deducted under s. 114(c), Woods J. found that s. 114(c) was restricted to deductions that were specifically allowed in computing taxable income, and noted that the effect of the above submission was that taxpayers would be able to claim interest deductions on a cash basis under s. 114(a) or on a accrual basis under s. 114(c) and that cash basis taxpayer (such as the taxpayers before her) could claim interest expense on an accrual basis and yet report the related interest income on a cash basis.