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: How is inventory used to determine income from a business?
Position: Provided the taxpayer with a copy of the Business and Professional guide as well as a couple of bulletins dealing with inventory.
Reasons: The answer to the correspondent’s basis questions are mostly set out in the guide.
XXXXXXXXXX 982378
J. E. Grisé
September 25, 1998
Dear XXXXXXXXXX:
Re: Inventory and Income
This is in reply to your letter of September 10, 1998 requesting our opinion on inventory for income tax purposes as well as its effect on the computation of an individual’s profit or loss from a business.
An individual’s business inventory is used in calculating the cost of goods sold for the business. The attached Business and Professional Income guide for 1997 discusses the cost of goods sold calculation on pages 10 and 11. The net effect of the cost of goods sold calculation is that the purchase of goods for sale will not be deducted until the goods purchased are sold. Please refer to the attached Interpretation Bulletin IT-102R2, Conversion of Property, Other than Real Property, from or to Inventory, for a discussion on the correct tax treatment where an individual’s capital property is converted to inventory.
As indicated in your letter, section 1801 of the Income Tax Regulations permits all the inventories of a business to be valued at its fair market value for the purpose of computing the income of a taxpayer from a business. We have attached for your information a copy of Interpretation Bulletin IT-473, Inventory Valuation, and its special release.
We hope our comments and attached documents will be helpful.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Enclosures
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