| 913404 | |
| Bill Guglich | |
| (613) 957-2102 |
24(1)
Attention: 19(1)
January 13, 1992
Dear Sirs:
Re: Transfer of Inventory by a Cash Basis Farmer Subsection 85(1) of the Income Tax Act (the Act)
This is in reply to your letter of December 2, 1991 concerning the transfer of inventory, by a cash basis farmer, under subsection 85(1) of the Act.
New paragraph 85(1)(c.2) of the Act as enacted by Bill C-18 applies where a taxpayer carrying on a farming business, the income from which is computed in accordance with the cash method, transfers to the corporation property, which was inventory owned in connection with that farming business immediately before the transfer of the property to the corporation.
Inventory is defined in subsection 248(1) of the Act, as amended by Bill C-18, to include property the cost or value of which would have been relevant in computing a taxpayer's income if the income from the business had not been computed in accordance with the cash method.
Assuming that the cash method farmer carries on the business of growing and selling this species of plants, it is our view that a cash basis farmer's growing crop of plants would, for purposes of subsection 85(1) of the Act, be considered inventory owned by the farmer. Pursuant to new subparagraph 85(1)(c.2), a growing crop of plants acquired on a subsection 85(1) rollover by a corporation in connection with a cash method farming business would be purchased inventory of the corporation for purposes of paragraph 28(1)(c) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch