Under a non-recourse loan owing by the taxpayer and other tenants of an office building to the non-resident landlord, 90% of the cash flow was applied first to the payment of interest and then designated and paid as rent. If the interest expense (which had been reduced to a 10% rate in the taxation years in question) exceeded the cash flow, the taxpayer could request in writing that the landlord advance the excess to him as an addition to principal, with such excess interest also being added to the principal if no such request was made. By the taxation years in question, the principal had accumulated to well over twice the value of the property.
After finding that the excess interest was deductible in full notwithstanding that a portion of it accrued on amounts that had been reinvested by the landlord as stipulated in the loan, Miller T.C.J. declined to find that this result represented in an abuse or misuse in the absence of being referred to any material that would assist him in understanding why the government permitted the deduction of simple interest on a payable basis and only permitted the deduction of compound interest on a paid basis. He stated (p. 1763):
"What is the policy? It is not my role to speculate; it is the Respondent's role to explain to me the clear and unambiguous policy. He has not done so."