Section 23

Subsection 23(1) - Sale of inventory


Edmund Peachey Ltd. v. The Queen, 79 DTC 5064, [1979] CTC 51 (FCA)

S.85E(1) of the old Act did not apply to the factual situation of the appellant because it had not ceased carrying on a business by virtue of abandoning its intention to develop its lands as a housing subdivision. Since it continued to hold the land inventory of the original business, it was reasonable to assume that its business had not been brought to an end.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate no unequivocal act to convert land inventory to capital property 100

Raby v. MNR, 65 DTC 5085, [1965] CTC 138 (Ex Ct)

S.85E(1) applied when the partner in a partnership holding 92 building lots became ill and sold his share of the lots at a profit to a corporation, which in turn sold these lots to his partner.

See Also

Henco Industries Limited v. The Queen, 2014 DTC 1161 [at 3528], 2014 TCC 192

land ceased to be inventory through sterilization rather than business cessation

A subdivision property of the taxpayer, a developer, was blockaded by Six Nations protesters. To diffuse the conflict, the Ontario government passed a by-law prohibiting any use of the property (rendering it valueless), and ultimately agreed to pay the taxpayer $15,800,000 in exchange for relinquishing its rights to the property and under a court order against the protesters, and for a release.

Before finding that as a factual matter the $15,800,000 receipt was not compensation for a "useless, worthless piece of land" (para. 167) but instead compensation for destruction of the taxpayer's business (i.e., goodwill), C. Miller J found (at para. 168) that s. 23 did not apply:

There was a conversion ... in which the DCE land completely lost its character as inventory. ... [T]he land did not lose its character as inventory because Henco went out of business and the land was sold while Henco was no longer carrying on a business (the very situation section 23 of the Act was put in place to address). The land lost its character as inventory by being made legally useless for development.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence parol evidence rule not applying to surrounding evidence/press releases admitted 239
Tax Topics - General Concepts - Fair Market Value - Land deference to taxpayer's figure within appraiser's range of values 111
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) compensation received in course of business but not in course of earning income 192
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital payment to withdraw from business was not an eligible capital amount 146
Tax Topics - Income Tax Act - Section 3 compensation payment for destroyed business was non-taxable 171
Tax Topics - Income Tax Act - Section 9 - Compensation Payments compensation payment for destroyed business was non-taxable 171

Administrative Policy

8 January 1993 T.I. (Tax Window, No. 28, p. 22, ¶2365)

S.23(1) will apply to land inventory