26 November 1990 Administrative Letter 900146 F - Inventoriable Tooling Costs

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

SUBJECT:  Inventoriable Tooling Costs  24(1)

This is in reply to your memorandum received on December 4, 1989, concerning 24(1)     23

The relevant facts are as follows:

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Taxpayer's Position

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Our Comments

Whether an asset is capital or inventory, in either case, it must be owned by the taxpayer.  24(1)  Generally, the date on which a disposition is considered to have occurred would be the effective date of the transaction as agreed by the parties, unless a contrary intention could be shown; the word "disposition" is used at its widest possible meaning in the capital cost allowance provisions of the Income Tax Act. As long as title or the normal incidents of title, i.e., possession, use and risk, are transferred, the Court will find that there has been a disposition of the relevant asset. Whether or not title or the incidents of title transfers, will depend on the substance of the transaction including the intention of the parties, the terms of the agreement and the facts and surrounding circumstances.

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As mentioned earlier, the courts have classically used three criteria for the determination of ownership apart from legal title: use, risk and possession.

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Another criteria which has been used by the courts is the "power to dispose of the property". In the case Montreal Trust Co. et al. v. M.N.R. 60 DTC 1183, Judge Thurlow, for the Exchequer Court, expressed his understanding of this criteria at page 1185 as follows:

     ... the term power in general being associated in legal usage with the description of an authority in respect to property or an interest in property which does not itself belong to the person holding the power. Even a power to dispose of property is wide enough to enable the holder of the power to exercise it in favour of himself the power itself, in absence of any exercise of it, is not regarded as equivalent to ownership of the property. Conversely, one scarcely refers to an owner either in ordinary or technical usage as "a person having a general power to appoint or dispose of" his property. But an owner undoubtedly has the right and, in that sense, the "power" to dispose of his property.

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We trust our comments are of assistance.

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch