Capital Asset v. Inventory

Cases

The Queen v. Donohue Normick Inc., 96 DTC 6061 (FCA)

Seventeen spare parts having a cost in excess of $1 million that the taxpayer purchased to be held until such time as identical parts in a continuous-operation paper machine broke down, represented capital assets (includable in Class 29) rather than inventory.

Stearns Catalytic Ltd. v. The Queen, 90 DTC 6286 (FCTD)

A stock of spare parts which the taxpayer kept on hand more or less permanently for potential use in the event of machine or equipment failure constituted capital property rather than inventory.

Sigma Exploration Ltd. v. The Queen, 75 DTC 5121, [1975] CTC 215 (FCTD)

The taxpayer, which carried out seismic surveys primarily on its own account and then sold the information so obtained to other companies, was permitted to deduct a payment of $60,000 to a bankrupt company for the purchase of seismic data and payments of $214,000 made to its U.S. parent for the purchase of digitalized well logs in order that the taxpayer could commence the marketing of digitalized well log data (which latter expenditure was treated as a deferred charge for accounting purposes). The taxpayer's intention "was to bring into inventory information which it reasonably expected to market quickly and produce revenue or income".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Old 143

Longueuil Meat Exporting Co. Ltd. v. The Queen, 74 DTC 6421, [1974] C.TC. 486 (FCA), aff'd 76 DTC 6145, [1976] CTC 193 (SCC)

The sum of $500,000, which the taxpayer paid to acquire the shares of a competitor, was held to be a capital expenditure. Jackett, C.J. stated: "Without holding that in no circumstances can money paid for shares in a company that has no assets other than goods desired by the purchaser as inventory be regarded as the cost of inventory or otherwise as a payment of a current nature, in the circumstances of this case, where ... the transaction had for one of its objects ... the elimination of a competitor and the acquisition of its goodwill. I am of opinion that the appeal fails".

See Also

Hawkes v. The Queen, 97 DTC 1258 (TCC)

Amounts expended by the taxpayers in order to receive an assignment of a portion of damages that might be received by the assignor under a law suit were expended on income account given that settlement could have come at any time.

Hinton v. Maden & Ireland, Ltd. (1959), 38 TC 391 (HL)

Expenditures which the taxpayer made to a acquire, on a recurring basis, knives and lasts which were used in conjunction with its machinery to manufacture shoes and slippers and which had an average life of three years, were found to be capital expenditures for the purposes of the investment allowance accorded for the acquisition of "plant".

Administrative Policy

16 November 1994 Memorandum 941467 (C.T.O. "Film Rights") (see also 3 November 1994 Memorandum 941171)

"The acquisition of program rights as described in Class 14 constitutes the acquisition of capital property and unless these properties are acquired for resale or as a component part of something being assembled for sale, such property should be treated as Class 14 assets... . A collection of Class 14 assets not acquired for resale but rather for showing, the costs of which benefits current and future periods, are not inventory items ... ."

IT-283R2 "Capital Cost Allowance - Video Tapes, Videotape Cassettes, Films, Computer Software and Master Recording Media"

Ordinarily, a taxpayer in the business of producing and marketing software for sale should include in inventory those development and software production costs that relate to the work in progress on hand.

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