Cases
Bernick v. The Queen, 2004 DTC 6409, 2004 FCA 191
A Bahamian partnership of which the taxpayer was a member purchased bonds at less than 10% of their maturity value, recorded the bonds in its financial statements as having a cost equal to the maturity value, and recorded a resulting loss when the bonds were sold within the following two years for values ranging from 10% to 14% of maturity value.
In finding that the Minister had correctly disallowed the deduction by the taxpayer of his share of the supposed losses on these bonds, Sharlow J.A. indicated that the accounting method followed by the partnership violated the principle established in the Canderel case, 98 DTC 6100 "that an accounting method is not acceptable for income tax purposes unless it results in an accurate determination of income" (p. 6412).
Sharlow J.A. went on to indicate (at p. 6412) that "in this context, 'accuracy' means reasonable accuracy, bearing in mind that any computation of profit may involve estimates and judgment calls relating to timing, allocation, estimates of value, and other such matters that accountants are often called upon to make".
Bellingham v. The Queen, 96 DTC 6075 (FCA)
An award of "additional interest" received by taxpayer pursuant to s. 66(4) of the Expropriation Act (Alberta) (a provision which required repayment of such amount in circumstances where an expropriating authority offered less than 80% of the amount ultimately awarded and the Expropriation Board was of the opinion that such lower figure was due to the fault of the expropriating authority) did not, by its nature, constitute compensation for the lands that had been taken.
Kaneff Properties Ltd. v. The Queen, 95 DTC 5345 (FCTD)
At the time the taxpayer (a real estate developer) acquired land in 1970, it had an alternative intention of possibly reselling the land at a gain. However, in 1976, it made a clear decision to develop the land for use as a commercial office tower (a revenue-producing investment). Rothstein J. found that the relevant intention for purposes of determining whether the portion of the appreciation that occurred between 1976 and 1983 should be treated as a capital gain or income was the taxpayer's intention at the time of commencement of development in 1976, rather than its intention at the time of acquisition in 1970, with the result that that portion of the gain realized on resale of the land in 1983 was on capital account.
Whittles v. Uniholdings Ltd. (No. 3), [1995] BTC 119 (Ch. D.)
In order to lower the effective interest rate payable by it on a loan of £14,056,000, the taxpayer and its bank agreed that at the time the bank paid £14,056,000, to the account of the taxpayer, the bank would debit a U.S.-dollar loan facility with the equivalent sum in U.S. dollars and that the bank would purchase for the taxpayer's account for forward delivery enough U.S. dollars to enable the taxpayer to repay the outstanding principal on the U.S.-dollar loan facility on its maturity date.
Although the U.S. dollars delivered under the contract appreciated significantly, Sir John Vinelott found (at p. 137) that:
"... the agreement between the company and the bank was a single composite agreement under which the company could not deal with the forward contract without the consent of the bank and under which the bank was to be at liberty to use the dollars purchased in discharge of the dollar loan, to the extent that that had not been repaid before 15 March 1983. If that is right, it must follow that the company did not make any profit on the forward purchase of dollars and made no sterling loss on the repayment of the dollar loan, ..."
Pollock v. The Queen, 94 DTC 6050 (FCA)
Hugessen J.A. indicated that it had not been shown that the Minister was wrong in computing the taxpayer's gain on income account from the disposition of shares previously acquired by him on the exercise of employee stock options by including the deemed remuneration under s. 7 in the cost to the taxpayer of those shares. In any event, if the Minister was wrong, the taxpayer could hardly be heard to complain because he had not been subjected to double taxation.
The Queen v. Cyprus Anvil Mining Corp., 90 DTC 6063 (FCA)
Urie J.A. found that the taxpayer effectively was precluded from computing its income for purposes of the former 36-month new mine holiday (by valuing closing inventory at market) on a different basis than its computation of income for its accounting and taxation years which overlapped, preceded and followed the 36-month exempt period (by valuing inventory at the lower of cost and market). "The critical principle, however, is that there be consistency in the computation of profit as that term is understood in subsection 9(1) of the Act."
Lloyd Estate v. MNR, 63 DTC 1349 (Ex Ct), briefly aff'd 65 DTC 5031 (SCC)
The taxpayer acquired a mortgage at a discount, and later foreclosed on the mortgage and sold the foreclosed property for a purchase price which was secured by a mortgage in favour of the taxpayer in the same principal amount as the previously-foreclosed mortgage. After finding that the taxpayer realized income in the year of foreclosure and sale in the amount of the original discount, Noël J. stated (p. 1358):
"It might have been possible to establish that the real value of the security recovered did not cover all of the amount of the discount and with proper evidence this might have been done. However, the evidence before me does not enable me to establish whether such is the case or not and the fact that the appellant agreed to accept a new mortgage from the purchaser for apparently the amount outstanding, presumably comprising the full amount of the discount, ... would indicate, I believe, that the value of the security recovered was sufficient to cover the full amount of the discount ..."
Silverman v. MNR, 60 DTC 1212, [1960] CTC 262 (Ex Ct)
The assumption by the purchasers of an inventory property of a mortgage (including a mortgage bonus) constituted part of the proceeds of disposition received by the partners of the vendor partnership. "[T]his undertaking was something of value to the partners since, without it, they would have been obliged sooner or later to find the money to discharge their obligation and the purchasers' undertaking relieved them of the obligation to do so."
Tuxedo Holding Co. Ltd. v. MNR, 59 DTC 1102, [1959] CTC 172 (Ex Ct)
The original shareholders of the taxpayer had transferred raw land (which they had valued at $355,000, based on an estimated selling price for building lots minus a 45% discount for estimated expenses) to the taxpayer in consideration for the issue of shares having a par value of $200,000. The difference of $155,000 was credited to contributed surplus. Cameron J. held (p. 1108) that:
"The consideration paid by the appellant for the ... lots was the par value of the shares issued and nothing more. What it gave up was the right to call upon the allottees of the shares for payment of the par value of each share."
The cost of the lots was not affected by the contemporaneous transfer of additional land to the taxpayer in consideration for shares, with a view to donating such land to the University of Manitoba in order to enhance the value of the land retained by the taxpayer.
Royal Trust Co. v. MNR, 57 DTC 1055, [1957] CTC 32 (Ex. Ct.)
Admission fees and annual membership dues of various officers of the taxpayer at social clubs which were paid by the taxpayer in order to help those officers bring in business, were deductible by it. The evidence established "that it was considered good business practice for a trust company to have its business getting officers become members of social clubs and pay their admission fees and annual membership dues" (p. 1061). Thorson P. followed his finding in the Imperial Oil case "that the deductibility of disbursements or expenses was to be determined according to the ordinary principles of commercial trading or well-accepted principles of business and accounting practice unless their deduction was prohibited by reason of their coming within the express terms of the excluding provision of section 6(a) [the antecedent of s. 18(1)(a)]", (p. 1059) although he went on to observe that he "should have omitted the reference to accounting practice". (p. 1059)
See Also
GMAC Leaseco Corporation v. The Queen, 2015 TCC 146
Leases by the taxpayer ("GMAC") to GM dealership customers leases stipulated a "residual value" at which the customer could purchase the vehicle at lease termination. If the car usage exceeded a stipulated maximum, a customer who returned rather than bought the vehicle on lease termination was charged an "excess kilometre charge," typically of $0.10 per kilometer. Customers at the inception of the lease could also increase the maximum kilometers the residual value by "purchasing" additional kilometers at 8 cents per kilometer. This reduced the residual value by the product of $0.08 and the number of "purchased" kilometers, thereby increasing their monthly rental payments.
GMAC treated the excess kilometre charges as proceeds of disposition reducing the undepreciated capital cost of its pool of Class 10 properties. In finding that they instead were received on income account, Graham J stated (at para. 18):
Whether the customer paid $0.08/km up front by purchasing additional kilometres or at the end of the lease by paying an Excess Kilometre Charge, the effect was the same. The customer was paying for an anticipated decrease in the market value of the vehicle at the end of the lease. If the customer paid for that amount up front by purchasing additional kilometres, GMAC considered it to be on income account. How then could it be on anything other than income account when the customer paid the same amount at the end of the lease?
See summaries under s. 9 – timing, s. 12(1)(x), and s. 9 – compensation payments.
Chronis v. The Queen, 2010 DTC 1188 [at 3441], 2010 TCC 218
Losses sustained by the taxpayer, when most of the property used by him in a business of selling pirated satellite television signals was seized by the RCMP, were fully deductible. Most of the property was inventory, and the balance of the property gave rise to a terminal loss.
Beaudry v. Her Majesty the Queen, 2010 DTC 1266 [at 3853], 2008 TCC 17, aff'd Romar v. The Queen, 2010 DTC 5076 [at 6816], 2009 FCA 48
The taxpayers set up an avoidance scheme wherein they bought partnership units with promissory notes to pay 7-10 years later an amount in Brazilian cruzeiros. The partnership contracted with a Brazilian research firm. The partnership paid in cruzeiros - approximately 20% of the amount owing was paid in cash, and 80% was an assignment of the promissory notes. The cruzeiro was experiencing rapid inflation, so the notes were nearly worthless - in effect, only 20% of the payment to the research firm was genuine.
In computing the partnership income, the amount of the promissory notes, measured using the current exchange rate, was deducted. Because the notes had no significant value at the time if they were used to pay the Brazilian firm,, Anger J. disallowed their deduction.
(Angers J. subsequently disallowed the deductions entirely, under s. 67.)
Saskferco Products Inc. v. The Queen, 2007 DTC 1183, 2007 TCC 462, aff'd 2008 FCA 297
Sales revenue that the taxpayer earned in the United States were required to be translated into Canadian dollars at the current rate of exchange when earned notwithstanding that in the taxpayer's financial statements, the sales revenue was translated at the rate of exchange that prevailed when the taxpayer borrowed in U.S. dollars to finance the construction of the nitrogen fertilizer plant that produced the product in question (with such financial statement treatment being based on the sales providing an effective hedge against fluctuations in the exchange rate). Woods J. stated (at para. 46) that:
"In computing revenue or expenses denominated in a foreign currency, a taxpayer must use the foreign exchange rate in effect at the time of the transaction."
Hollinger Inc. v. The Queen, 98 DTC 1913 (TCC), aff'd 99 DTC 5500 (FCA)
In finding that shares with a high adjusted cost base but nominal fair market value that the taxpayer had acquired with a view to realizing the accrued capital loss were capital property to the taxpayer, Bowman TCJ. stated (at p. 1918):
"I do not regard a decision to sell an unproductive investment on terms that are as favourable as possible as a change of use, giving rise to deemed disposition and a conversion from capital to inventory."
Bondar v. The Queen, 97 DTC 517 (TCC)
In connection with the acquisition of the shares of a corporation ("LTM") by another corporation ("HSS") of which the taxpayer was the general manager, the taxpayer used the proceeds of a daylight loan to advance money to LTM, LTM loaned the same sum to its shareholders, the shareholders loaned the same sum to the taxpayer on a non-interest bearing basis with the principal not being due for approximately 100 years, and the taxpayer used the sum to pay off the daylight loan. Beaubier TCJ. found that there was no evidence to rebut the assumption made by the Minister that the cost to the taxpayer of the loan made by him to LTM was nil. Accordingly, the repayment of such loan by way of set-off against amounts subsequently becoming owing by the taxpayer to the successor of LTM gave rise to taxable proceeds to the taxpayer.
Federal Commissioner of Taxation v. Energy Resources of Australia Ltd., 94 ATC 4923 (Full Fed. Ct.)
Hill J. stated, in obiter dicta (at p. 4950-4951):
"In my view, where a discounting transaction is conducted wholly in a foreign currency, the proper way of determining the amount of deduction to which a taxpayer is entitled by virtue of the discounting, will be to take the discount in the foreign currency and then translate the result into Australian dollars for the purpose of then computing the taxable income."
He further noted that the alternative method (of translating both the amount received and the amount repaid into Australian dollars at the then prevailing spot rate) was impractical (p. 4953):
"[I]t is obvious that it would normally be impractical to effect instantaneous translations into Australian dollars of every debit and credit arising in the course of business transactions."
Roos v. The Queen, 94 DTC 1094 (TCC)
Land which the taxpayers acquired as capital property for use as a tree nursery was converted into inventory when they made formal applications to the Ministry of Municipal Affairs and Housing for a plan of subdivision for a particular block of lots. "By this time they are fully committed to proceeding with the subdivision and had progressed far enough that their change of intention was evident from their affirmative acts." (p. 1099)
Marina Québec Inc. v. MNR, 92 DTC 1392 (TCC)
Tremblay J. applied the decision in Osborne v. Steel Barrel Co. Ltd. (1942), 24 TC 392 in finding that inventory which the taxpayer acquired in consideration for issuing redeemable preferred shares with a par value of $603,081 had a cost at least equal to that amount.
Street v. MNR, 91 DTC 369 (TCC)
The cost to the taxpayer of shares which he disposed of on income account following the exercise of employee stock options included the amount of the s. 7 benefit which had been included in his income, notwithstanding the inapplicability of s. 53(1)(j).
Cantor v. MNR, 85 DTC 79 (TCC)
Twenty eight townhouses which the taxpayers purchased as rental properties in 1969 were not converted into inventory when a number of years later they decided to sell the properties separately to individual purchasers for their own use and, to accomplish this end, expended significant amounts on repairs and obtained separate title for each townhouse under condominium legislation.
In finding that all the proceeds of disposition received by the taxpayers were on capital account, Cardin J. stated (at p. 84):
"In the case of bar, there was no change in the character or indeed in the use made of the townhouses. Whether they were rented or owned by the occupier, their use was residential.
... It appears evident to me from the evidence that the appellants' whole course of conduct as of late 1974 was to dispose, at the best possible price, of rental income property which was no longer a profitable investment."
Gold Coast Selection Trust, Ltd. v. Humphrey (1948), 30 TC 235 (HL)
The taxpayer transferred mining concessions to a newly-incorporated company in consideration for shares of the company contemporaneously with an initial public offering of shares of the company.
The decision of the Commissioners that the shares acquired by the taxpayer on the transfer should be valued at the end of the accounting year in order to determine the profit on the transfer, was upheld. The value of the shares received was to be determined on the basis of the amount of money for which the shares could have been sold, which was not necessarily the same as the par value of the shares received.
Osborne v. Steel Barrel Co., Ltd. (1942), 24 TC 293 (C.A.)
A corporation purchased various assets including inventory in consideration for the payment of £10,500 and the issue of 29,997 fully-paid shares with a par value of £1 each. In rejecting the Crown's submission that because the issue of the shares did not cost the corporation anything, the inventory acquired by it had a correspondingly low cost, Lord Greene M.R. stated (pp. 306-307):
"A company, therefore, when in pursuance of such a transaction it agrees to credit the shares as fully paid, is giving up what it would otherwise have had, namely, the right to call on the allottee for payment of the par value in cash ... Accordingly, when fully paid shares are properly issued for a consideration other than cash, the consideration moving from another company must be at the least equal in value to the par value of the shares and must be based on an honest estimate by the directors of the value of the assets acquired." [C.R: 54(a)]
Administrative Policy
25 September 2015 T.I. 2015-0596921E5 - Conversion from inventory to capital
Do the rules in s. 45(1) apply where a home builder, who initially held a property as inventory, commenced to use it for his personal use, having regard to "2013-0493811C6, which discussed the CRA's views on C.A.E. Inc. v. The Queen, 2013 FCA 92"? CRA responded:
[In] 9335765… the CRA indicated that the rules in subsection 45(1) would not apply where real estate held by an individual as inventory is permanently converted to a capital property that is personal use property ("PUP")… [and] that the treatment of any gain on the ultimate sale of the particular PUP would not give rise to a gain or loss on income account. …
[This] continues to represent the CRA's views.
23 December 2013 Memorandum 2013-0514701I7 - Bitcoins
When asked to address the consequences of buying and selling goods in exchange for Bitcoins, CRA noted that a sale of property or services for Bitcoins is a barter transaction, and stated:
Where an amount must be brought into income, that amount is the price that the taxpayer would normally have charged an arm's-length person for the goods or services. …
Example
…Ms. B buys a book from the bookstore using Bitcoins. The value of the book is $20. Mr. A [the vendor] would treat the transaction as if he had been paid $20 in Canadian dollars for the book.
5 November 2013 CRA Press Release "What you should know about digital currency"
Where digital currency is used to pay for goods or services, the rules for barter transactions apply. …For example, paying for movies with digital currency is a barter transaction. The value of the movies purchased using digital currency must be included in the seller's income for tax purposes. The amount to be included would be the value of the movies in Canadian dollars. [See] IT-490, Barter Transactions.
1 November 2013 T.I. 2013-0501131E5 - Micro-FIT Rental Income
The taxpayer, who co-owned a house equally with his or her spouse, contracted with a solar equipment provider to have solar panels installed on their roof, so that the taxpayer would own the panels after 20 years. In the meantime, the equipment provider enters a microFIT contract with the Ontario Power Authority and receives revenue from selling the electricity from the panels. The equipment provider passes on a portion of this revenue to the taxpayer. Would each spouse include 1/2 of such revenue in income?.
CRA stated that "you and your spouse would each ... calculate your share of the rental income." Because the equipment provider retains ownership of the panels, the homeowners are not entitled to CCA deductions until they gain ownership.
22 October 2012 T.I. 2012-0455921E5 - Free Rent in Lieu of Receiving Interest Income
The vendor of two residences takes back a second mortgage on the property from the purchaser, does not charge interest on the second mortgage and stays in the residences without being charged rent. CRA stated:
the receipt of a free rental accommodation in exchange for an interest free loan is a barter transaction....Thus, the value of the rent foregone granted by a Landlord in exchange for an interest-free loan from a Tenant is generally subject to taxation in the hands of the Landlord....
28 March 2012 T.I. 2011-0430311E5
When a taxpayer holding an apartment building as capital property decides to convert it to condominiums and sell them, the property is converted to an income property when the decision is made to follow that course of action, with the result that when the condominiums are sold, capital gains or losses (based on the fair market value at the time of conversion) and income account gains or losses (based on subsequent changes in value) will be realized. This is supported by Hughes.
22 February 2012 T.I. 2008-0289021E5
the correspondent noted that under the GAAP that prevailed in 2008 (contained in Section 3855 of the CICA Handbook) taxpayers whose financial liabilities were incurred for trading purposes were required to revalue those liabilities at fair value, and referred in particular to situations where such liabilities were revalued at a year end as a result of a change in prevailing interest rates.
CRA indicated that the income or loss arising for accounting purposes from such annual adjustments due to fluctuations in interest rates would not be recognized for purposes of the Act. Although CRA accepted the Canadian General Electric case, that "decision does not apply to the revaluation of a debt due to interest, credit or other adjustments." Furthermore, s. 18(1)(e) "specifically denies a deduction for reserves and contingent liabilities."
27 October 2011 Memorandum 2010-0382161I7 F
In light of their treatment under International Accounting Standard (IAS) 2, "Inventories," and Emerging Issues Committee (EIC) Abstract EIC-144, "Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor," may volume rebates received or receivable from suppliers who are food wholesalers be applied to reduce the cost of the purchased food inventory, or must they be included in income? CRA responded (TaxInterpretations translation):
Discounts generally are received by the taxpayer at the moment of purchase as a reduction in the price payable and do not represent income for it. In contrast, rebates paid or payable after the purchase constitute gross revenue for the taxpayer. Thus, a rebate which is not provided at the moment of purchase, and which depends on a future event, must be taken into account in the computation of income under subsection 9(1).
2004 APFF Roundtable Q. 36, 2004-008704
Discussion of the consequences of granting and exercise of a stock option to and by a consultant.
16 April 2003 Memorandum 2002-016080
Where foreign currency denominated accounts receivable are hedged by foreign currency forward contracts, the foreign currency denominated accounts receivable should be translated into Canadian currency at the prevailing year end exchange rate but so too should the forward currency contract. Since this produces the same result as the taxpayer's method of translating the accounts receivable at the forward rate, that method is acceptable.
After referring to the Friedberg case, CCRA stated that:
"While the CCRA recognizes the realization method of computing income in respect of a financial instrument for a trader in commodity futures, it does not mean that the Supreme Court of Canada precluded the use of the 'mark-to-market' method (or the margin account balance method) in computing income for income tax purposes."
15 July 2002 Memorandum 2002 - 0151247
As there would be no market for an incentive option issued to a consultant by a Canadian corporation, and the exercise price at the time of grant was equal to the fair market value of the shares at that time, there would be no benefit to the consultant at the time of grant.
2001 T.I. 2001-009208 -
The assumption of a short sale obligation of an individual by a corporation controlled by him would result in realization of the accrued gain or loss on the short sale obligation.
11 September 2001 T.I. 2001-008736 -
A transfer of securities by a lender to a borrower under a short sell arrangement to which s. 260 does not apply generally results in a disposition of the securities by the lender at fair market value in an acquisition by the borrower at fair market value on the date the securities are transferred to the borrower. The consideration paid by the borrower is in the form of a right provided to the lender to reacquire an equal number of identical securities for no consideration other than the extinguishment of the right. The disposition of the borrowed securities by the borrower to a third party immediately after they are borrowed would generally produce no gain or loss as the value of the borrowed securities will not have changed in the interim. When the right to acquire securities given by the borrower to the lender is settled, the borrower will purchase from a third party the number of securities it originally borrowed and dispose of these new securities to the lender in consideration for the settlement of that right; accordingly, the borrower will realize a gain or loss at that time equal to the change in the value of the borrowed securities during the term of the arrangement.
7 March 2001 T.I. 2001-006896
"It is unlikely that the mere act of stratifying an apartment building will result in such a conversion [from capital property to inventory]."
2 March 2001 Memorandum 2001-006651 -
Tenants of a seniors residence building owned and operated by a charitable organization and who receive a reduction in their rent if they make an interest-free loan to the organization would be considered to derive investment income from the loan equal to the amount of the rent reduction.
20 July 2000 Memorandum 2000-0035017
When trucks of a leasing company reach the termination of the respective leases at the three-year point, there is a conversion of capital property to inventory, and capital cost allowance may not be claimed. "While a truck rental company would not be seen as having converted capital property to inventory when the leased trucks are being replaced only when worn out or obsolete ... where leased vehicles are withdrawn from leasing part prior to that time and are sold as an integral part of the taxpayer's normal business operations, a conversion of the trucks to inventory is considered to occur prior to their sale."
3 May 2000 T.I. 1999-001391
Where options are granted to an independent contractor as a result of the supplier/customer relationship, it will be required to include in computing its income from business in the year the fair market value of the options at the time the options were granted (i.e., the greater of the trading value and the in-the-money value). If the options are exercised by virtue of the supplier/customer relationship, the independent contractor will be required to include in computing its income from business in the year of exercise the difference between the fair market value of the shares at the time the shares were acquired, and the aggregate of the amounts paid for the shares and the amounts included in income at the time the options were granted. If the options expire, it may deduct the amount previously included in income.
11 April 2000 Memorandum 2000-000132
The CCRA will accept the use of either the mark-to-market method or the realization method by mutual funds in accounting for derivatives provided that the mutual funds used the same method consistently from year to year.
16 November 1999 T.I. 990214
Where corporation B pays in part for services rendered by corporation A by way of the issuance of stock options, the fair market value of the options will be included in corporation A's income from business, and on any exercise the difference between (a) the value of the shares received and (b) the exercise price paid and the amount previously included in income, will also be added to corporation A's income. The adjusted cost base of the shares of corporation B to corporation A will be computed in accordance with s. 52(1).
14 August 1996 T.I. 5-961478
With respect to an agreement entered into between a trader holding a substantial block of shares of a company in inventory, and a promoter who will receive a portion of the trader's shares at specified intervals if the shares reached a target trading price, RC stated that the proceeds of disposition of the shares to the trader would be the price that the trader would normally have sold as property to a stranger at the time of the transfer.
24 April 1995 T.I. 942771 (C.T.O. "Securities Lending")
Where a borrower of shares returns the shares to a lender with which it does not deal at arm's length, it will dispose of the shares for proceeds equal to the fair market value of the shares on the date of the transfer, resulting in a gain or loss equal to the change in the market value of the shares during the period of the securities loan. Similarly, the obligation to return the shares to the lender that arose at the time of the original borrowing will be extinguished for an equal amount, giving rise to a gain or loss on the settlement of the obligation equal the difference between value of the shares on the date of the loan and the repayment date.
18 May 1994 T.I. 5-932991 -
In response to a query as to whether the rules in s. 53 applied in computing the income or loss on the disposition of a limited partnership interest which might not be capital property, the Directorate first noted that, although the definition of adjusted cost base may apply to any property, it was its view that the concept of adjusted cost base was not relevant in the calculation of taxable income of a taxpayer where s. 9 applied and that, conversely, Subdivision c was applicable only in respect of capital properties. After referring to the "truer picture" test enunciated in West Kootenay Power and Light Co. Ltd. v. The Queen 92 DTC 6023 (FCA), the Directorate then stated:
...in accordance with these principles, any income or loss incurred by the partnership, to the extent of the taxpayer's share, should respectively be added or subtracted in the computation of the cost of his interest, for the purposes of section 9....[T]his would represent...the "truer picture' of the taxpayer's income for a taxation year..
30 March 1994 T.I. 933722 (C.T.O. "Shares Held as Inventory")
On the redemption of shares held as inventory, a deemed dividend will arise pursuant to s. 84(3) and, to the extent that the paid-up capital of the share exceeds its cost to the shareholder, the excess will be included as business income of the recipient under s. 9(1). Because s. 54(h)(x) is not applicable, any deemed dividend arising under s. 84(3) cannot result in the realization by the recipient of any loss.
4 March 1994 Memorandum 932121 (C.T.O. "Sale of Burial Plots")
The sale of burial plots by cemetery operators is characterized by RC as similar to the granting of an easement, with the result that there is a partial disposition of the ownership rights associated with the operator's land. The inventory cost for these purposes might be determined by reference to the diminution in value of the land as a result of the sale of the burial plot.
21 February 1994 T.I. 5-933576
Where a taxpayer permanently converts real estate from inventory to personal-use capital property, the ultimate sale of the real estate will not give rise to a gain or loss on income account.
1994 A.P.F.F. Round Table, Q. 47, 5M08340
When a taxpayer acquires shares of a corporation in financial difficulty, as a speculation, for an amount ($100,000) that is less than the $500,000 paid-up capital of the shares and later, after the situation improves, withdraws $300,000 as a reduction of paid-up capital, the full $300,000 withdrawn by the taxpayer will be taxable as a business profit without any reduction being allowed for the amount paid for the shares. The Directorate added that "redemption of a portion of the shares by the corporation would have been preferable, as this would allow the taxpayer to claim a part of the cost of the shares in computing his buisness income for the year."
1 February 1993 T.I. (Tax Window, No. 28, p. 11, ¶2386)
Where the cost of developing a golf course situate in the middle of a residential development exceeds its estimated fair market value, the developer will not be able to add such excess to the cost of the surrounding residential lots even though the purpose of developing the golf course was to increase the value of those lots.
24 December 1992 Memorandum (Tax Window, No. 27, p. 14, ¶2337)
Unrealized gains and losses on gold loans of a gold producer that are designated by it as an effective hedge of its gold production should be included in income to the extent of the portion that corresponds to the producer's production for the particular year. The balance of the unrealized gains and losses on hedged amounts should be deferred.
25 September 1992 T.I. (Tax Window, No. 23, p. 11, ¶2171)
Changes in the shareholders of a corporation (including an acquisition of control) will not by themselves justify a change in the accounting policies followed by the corporation.
The temporal method is acceptable for accounting for foreign exchange, but not the current rate method.
8 January 1992 T.I. (Tax Window, No. 27, p. 19, ¶2359)
Where a corporation transfers land as capital property on a rollover basis to a subsidiary which acquires the land to develop for resale, the entire difference between the subsidiary's proceeds of sale and its adjusted cost base (inherited from its parent) will be treated as business income.
92 C.M.T.C - Q.5
RC's position that a mining company must mark a gold loan to market applies even where the company only entered into one gold loan.
30 November 1991 Round Table (4M0462), Q. 13.1 - Conversion of Capital Property into Inventory Property (C.T.O. September 1994)
Where real property that is used for the purpose of gaining or producing income from a business or property is converted from capital property into inventory, the cost to the taxpayer for purposes of s. 10(1) is the fair market value of the property on the date of conversion. The notional capital gain or loss arising on the conversion will give rise to a taxable capital gain or allowable capital loss for the taxation year during which an actual sale of the real property occurs, irrespective of the manner in which the fair market value of the property fluctuates after the conversion date.
4 September 1991 T.I. (Tax Window, No. 9, p. 20, ¶1445)
Where there is a partial repayment of a debt acquired on income account at a discount, the taxpayer may use either the part disposition method or the cost recovery method. Under the cost recovery method, no amount is taken into income until the cost of the debt has been recovered.
90 C.P.T.J. - Q.11
Discussion of the consequences of a principal business corporation borrowing a million barrels of crude oil to be repaid through production from a particular project.
22 May 1990 T.I. (October 1990 Access Letter, ¶1451)
Discussion of computation of income from a joint venture.
IT-490 "Barter Transactions"
IT-102R2 "Conversion of property, other than real property, from or to inventory" 22 July 1985
8. Where capital property is converted to inventory, the action of conversion does not constitute a disposition within the meaning of paragraphs 13(21)(c) and 54(c). It is, however, recognized that the ultimate disposition of a property that was so converted may give rise to a gain or loss on capital account, a gain or loss on income account or a gain or loss that is partly capital and partly income. Accordingly, with respect to capital property that has been converted to inventory, taxpayers may calculate capital gains or losses, if any, on the basis that a notional disposition of such property occurred on the date of conversion.
IT-218R "Profit, Capital Gains and Losses from the Sale of Real Estate, including Farmland and Inherited Land and Conversion of Real Estate from Capital Property to Inventory and Vice Versa" 16 September 1986
10....where real estate is converted from capital property to inventory...for real estate that is used for the purpose of gaining or producing income from a business or property, its conversion to inventory will not constitute a change in use...and the proceeds from its ultimate sale will be treated in accordance with 15 below....
12. Vacant land that is capital property used by its owner for the purpose of gaining or producing income will be considered to have been converted to inventory at the earlier of
(a) the time when the owner commences or causes the commencement of improvements thereto with a view to selling it, and
(b) the time of making application to the relevant authority for approval of a plan to subdivide the land into lots for sale, provided that the taxpayer proceeds with the development of the subdivision.
13. The units in a multi-unit residential apartment, or an office, warehouse storage building or any similar structure that is held as capital property by the owner will be considered to have been converted to inventory at the time when application is made to the relevant authority for approval to change the title to any such building to strata title, provided that the owner proceeds with the sale of the units.
Articles
Dent, "Going for the Gold", CA Magazine, January 1990, p. 23
Includes a discussion of the tax treatment of forward gold sales.
Harris, "Tax Aspects of Condominium Conversions and Lease Inducement Payments to Recipients", 1986 Conference Report, c.45.
Tetreault, "Canadian Tax Aspects of Asset Securitization", 1992 Conference Report, c.23
Discussion of whether the transfer of purchased receivables from the seller to a special purpose vehicle under a trade receivables securitization constitutes a sale or a secured loan transaction.
Hudec, Jenkins, "Recent Financial Innnovation in the Canadian Energy Sector", 1991 Canadian Petroleum Tax Journal, Spring 1991, p. 85
Discussion whether a receivables securitization program gives rise to a "sale".
Fryers, "'Net Serve! One to Come!' (The Net Profits Interest in the Oil and Gas Industry - An In-Depth Analysis)", 1988 Canadian Petroleum Tax Journal, Spring 1988, p. 121
Discussion of the extent to which royalties or other payments computed by reference to profit are deductible.