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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Mandatory Inventory Adjustment
Position:
Where an amount of a purchase price has been allocated to unharvested trees, these trees would be considered purchased inventory for purposes of paragraph 28(1)(c)
Reasons:
ITA, IT-373R special release
XXXXXXXXXX 962802
Attention: XXXXXXXXXX
November 7, 1996
Dear Sirs:
Re: Mandatory Inventory Adjustment
This is in reply to your facsimile of August 22, 1996 in which you request a technical interpretation with respect to the provisions of the mandatory inventory adjustment.
The situation described in your letter is an actual fact situation and written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Where a completed transaction is involved, the enquiry should be addressed to your local District Tax Services Office. Consequently, we can only offer the following general comments.
The Department's general position with respect to the meaning of a farming business is outlined in Interpretation Bulletin IT-433 and in particular paragraph 7 which states "... The definition is not exclusive and it has been decided by our courts that farming also includes tree farming and the operation of a wild game reserve. In certain factual circumstances it is considered that farming includes raising fish, market gardening, the operation of nurseries and greenhouses, and the operation of a chicken hatchery. ..."
Paragraph 5 of Interpretation Bulletin IT-526 states that generally, inventory for purposes of the mandatory inventory adjustment will be valued in accordance subsection 28(1.2) of the Income Tax Act (the "Act") at the lesser of a) the total amount paid by the farmer to acquire the inventory, and b) its fair market value.
In our view, where an amount of the purchase price is allocated for unharvested trees in the field, these trees would be considered purchased inventory and would be subject to the mandatory inventory adjustment pursuant to paragraph 28(1)(c) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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