Subsection 23(1) - Sale of inventory
Cases
Edmund Peachey Ltd. v. The Queen, 79 DTC 5064, [1979] CTC 51 (FCA)
S.85E(1) of the old Act did not apply to the factual situation of the appellant because it had not ceased carrying on a business by virtue of abandoning its intention to develop its lands as a housing subdivision. Since it continued to hold the land inventory of the original business, it was reasonable to assume that its business had not been brought to an end.
Raby v. MNR, 65 DTC 5085, [1965] CTC 138 (Ex Ct)
S.85E(1) applied when the partner in a partnership holding 92 building lots became ill and sold his share of the lots at a profit to a corporation, which in turn sold these lots to his partner.
See Also
Henco Industries Limited v. The Queen, 2014 DTC 1161 [at 3528], 2014 TCC 192
A subdivision property of the taxpayer, a developer, was blockaded by Six Nations protesters. To diffuse the conflict, the Ontario government passed a by-law prohibiting any use of the property (rendering it valueless), and ultimately agreed to pay the taxpayer $15,800,000 in exchange for relinquishing its rights to the property and under a court order against the protesters, and for a release.
Before finding that as a factual matter the $15,800,000 receipt was not compensation for a "useless, worthless piece of land" (para. 167) but instead compensation for destruction of the taxpayer's business (i.e., goodwill), C. Miller J found (at para. 168) that s. 23 did not apply:
There was a conversion ... in which the DCE land completely lost its character as inventory. ... [T]he land did not lose its character as inventory because Henco went out of business and the land was sold while Henco was no longer carrying on a business (the very situation section 23 of the Act was put in place to address). The land lost its character as inventory by being made legally useless for development.
Administrative Policy
8 January 1993 T.I. (Tax Window, No. 28, p. 22, ¶2365)
S.23(1) will apply to land inventory