interest

Section 6 of the Farm Security Act 1944 (Saskatchewan) provided that in the event of a crop failure, the principal of a mortgage on a farm would be automaticallyl reduced by 4%, but that notwithstanding such reduction, interest would continue to be payable as if the principal had not been reduced. In finding that section 6 was ultra vires as being provincial legislation in relation to interest, Rand J stated (at p.

In finding that annual amounts described in various resolutions of the taxpayer as "interest" in fact were guarantee payments, Locke J. stated (p. 515):

"Interest is paid by a borrower to a lender: a sum paid to a third person as the consideration for guaranteeing a loan cannot be so described."

The taxpayer subscribed for loan stock of a family company at a price equal to its principal amount. Although the loan stock did not bear any amounts described as interest, a premium was payable on any redemption or repayment thereof "equal to 7.25% per annum of the Principal Amount to be repaid or redeemed, accruing on a daily basis." A few days later, he transferred the loan stock to a family trust.