May a taxpayer include ground or cut meat ("processed meat"), obtained by slaughtering and processing animals raised by it, in inventory of an agricultural business for the purposes of s. 28(1)(b)? CRA responded:
In general, the Canada Revenue Agency does not consider income from certain activities such as processing, which in and of themselves are not farming activities, as being derived from a farming business unless they are not incidental to the farming activity and the income from these activities is not materially significant in relation to the income from farming. …
…Tinhorn Creek…concluded that winemaking was linked to viticulture and was an integral part of the taxpayer's farming business.
…[I] f the taxpayer has only one business and that business is a farming business, the processed meat held by the taxpayer… could then be property included in inventory for the purposes of paragraph 28(1)(b).
If…the taxpayer carries on two separate businesses…the income from the processing activity cannot be computed in accordance with the cash method of accounting provided for in section 28, and the processed meat cannot be considered as goods included in inventory in connection with a farming business.