On March 1, 1975 the taxpayers acquired all of the common shares of the New Brunswick Industrial Finance Board in a company that manufactured charcoal briquettes for $1 and agreed to operate the company for the following two years in consideration for the agreement of the Board to postpone the obligation to pay principal and interest in excess of $5 million of indebtedness owing by the Company to the Board, and the Board's agreement that upon expiration of the two-year period it would sell such indebtedness and accrued interest to the taxpayers for $10.
The taxpayers were entitled to deductions under s. 20(14)(b) to the extent of the interest received by them on the indebtedness following the two-year period. There was no requirement that the accrued interest be included in the income of the transferor (the Board) in order for the transferee (the taxpayers) to be entitled to a deduction. Iacobucci J. noted at p. 6322 that "where specific provisions of the Income Tax Act intend to make the tax consequences for one party conditional on the acts or position of another party, the sections are drafted so that this interdependence is clear. Furthermore, the motives of the parties and the setting in which the transfer took place, are simply not determinative of the application of the subsection" (p. 6320).
In response to a submission that a deduction was not available under s. 20(14)(b) with respect to the interest that accrued during the two-year period because it became payable at the same time as the transfer of the debt occurred at the expiration of the two-year period, Iacobucci J. stated (p. 6323) that he found "it difficult to understand how the appellants could have made a valid demand for payment of the interest until after the debt had been fully transferred to them". Accordingly, such accrued interest did not become payable on demand until immediately after the time of the transfer.