income

Before dealing specifically with the interpretation of s. 63(2), MacKay J. found (p. 6572) "that the word 'income', both in its ordinary usage and that employed in the context of the Act imputes the existence of a positive amount" and found, with respect to section 3 "which is the closest thing to a definition of 'income' under the Act" that "the very explicit use of the words 'remainder, if any' in the final phrase of the section truly mandates the existence of something positive before the taxpayer can be said to have income for purposes of the Act" (p. 6572).

In order to utilize the losses of its U.S. subsidiary, the taxpayer borrowed funds in Canada from an arm's length bank and made a capital contribution of those funds to the U.S. subsidiary. The U.S. subsidiary purchased a term deposit from the bank bearing a lower rate of interest than that charged on the bank loan to the taxpayer and pledged the deposit to the bank as security for that loan. The interest generated by the term deposit was paid as a dividend to the taxpayer.

A group of Canadian investors, including the taxpayers, invested in the shares of two Panamanian corporations (collectively, "Justinian") whose principal activity was investing in bonds. Each year Justinian paid an annual dividend equal to 1% of the original cost of the share subscriptions in its capital.