You have just met with Mary Tyler Moore . She is the vice-president of Finance with ABC Manufacturing Ltd. (ABC), a Canadian-controlled private corporation. She has provided you with the following details concerning her current borrowings.

1. She has $200,000 outstanding on her personal residence mortgage held by the Bank of Ontario. The interest rate is 4.75%.
2. She has borrowed $25,000 from the Bank of Ontario to invest in the common shares of a publicly traded company, Underground Airways Inc., that she feels is about to take off and realize a large increase in the share price. This company historically has not paid any dividends on its common shares. The interest rate on this loan is 6%.
3. She has a line of credit with her bank that currently bears interest at 5%. a) She has borrowed $75,000 of this credit to fund the purchase of a parcel of land. This parcel of land is currently vacant, but she hopes to build soon a summer home on the property. b) She borrowed to fund her maximum RRSP contribution for the year. c) She borrowed $23,500 of the line of credit to purchase a Guaranteed Investment Certificate yielding 4%. She gave the certificate to her 12-year-old daughter.

Required:

Advise Mary regarding the tax implications of borrowing from ABC and the deductibility of the interest paid on each of the above loans. There is no need to do detailed calculations of the exact amount of interest on each loan. However, be sure to indicate clearly your reasoning in all situations. Section references may be helpful in providing precision to your answer, but are not required.