CRA finds that members of a corporate co-op likely were the beneficial owners of the co-op cattle inventory notwithstanding the documentation’s contrary label

As an economic matter, members of a feeder cattle finance cooperative established under the Co-operative Corporations Act used money borrowed on their behalf by the co-op to purchase cattle, and then maintain and feed them until sale and slaughter, so that, for example, they were responsible for all the costs of raising the cattle and maintaining their health. However, to secure such borrowing by the co-op and to provide better insulation from the effects of any member bankruptcy, the documentation of such transactions for the most part treated the co-op as retaining at all times, up to such sale, “all legal, equitable and beneficial ownership in the cattle.”

After indicating that “the definition of inventory in the Act is consistent with the ordinary meaning of the word and that in order to hold inventory for sale a taxpayer must own the inventory,” and that “the primary attributes of beneficial ownership are possession, use, risk and control,” CRA went on to state:

While the determination of who beneficially owns the cattle is a mixed question of law and fact that can only be determined after a complete review of all the terms and conditions of the contracts and agreements between the parties, it is our view that based on the information submitted that the beneficial ownership of the cattle is likely with the Members. The Members would treat the cattle as inventory for income tax purposes.

This is a good example of CRA’s willingness to make its own assessment of the legal substance of arrangements rather than being bound by the parties’ labels.

Neal Armstrong. Summary of 18 July 2022 External T.I. 2021-0887121E5 under s. 248(1) – inventory.