The taxpayer argued that it was in the business of making loans on the basis that the Canadian corporation in which it was invested had declared a dividend and a reduction of stated capital payable, each case, "by the issuance of a demand promissory note."
Sharlow JA found that the Tax Court Judge had erred in finding that the dividend was includable in the income of the taxpayer in the year of declaration on the basis that the taxpayer was required to compute its income on a accrual basis: "The clear result of the combined operation of paragraph 12(1)(j) and clause 82(1)(a)(ii)(A) of the Income Tax Act is that such dividends are taxable only when received, not when they are merely receivable" (para. 6). However, the dividend was actually received in the year of declaration given that the expressed intention was for the dividend to be paid by means of delivery of a promissory note.
Mogan TCJ had correctly concluded that the principal business of the taxpayer was not the making of loans given that there was no evidence that it had ever lent money to another party on the condition that the money be repaid, and there thus is no evidence that it had made any loans at all, much less carried on a money lending business.