In the case ENMAX Energy Corp. v. Alberta [2016] A.J. #. 656, the Alberta Court of Queen’s Bench considered what is reasonable when deducting interest. It was not a federal income tax case, rather, a provincial tax matter involving “payments in lieu of tax” (also known as PILOT) established in Alberta as a result of de-regulating the electrical utility industry. In general, PILOT payments were equal to the tax that would be imposed if the taxpayers were not tax exempt government entities. One of the deductions available when calculating the PILOT liability was a reasonable amount of interest on money borrowed for the purpose of earning income. As a result, this case is of interest when interpreting the meaning of “reasonable” for purposes of paragraph 20(1)(c) of the Income Tax Act (known as the “Act”).
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