18 May 1990 Income Tax Severed Letter AC59735 - Inventory of Farming Business

24(1)                        5-9735

                                                W.C. Bailey
                                                957-2061

                   19(1)

May 18, 1990

Dear Sirs:

Re: Paragraph 28(1)(c)

This will reply to your letter of March 5, 1990 concerning the above provision. We apologize for the delay in our response.

Specifically, you inquire whether the following purchased items, on hand at year end, will be considered inventory for purposes of the mandatory inventory adjustment in paragraph 28(1)(c) and for the optional inventory adjustment in paragraph 28(1)(b).

         - unapplied fertilizers
         - unapplied chemicals
         - fuel
         - parts for machinery
         - feed for livestock
         - seed grain
         - automobile gasoline purchased in bulk

The term "inventory" as used in these paragraphs has the same meaning as it does throughout the Act. It is defined in subsection 248(1) and it includes parts and supplies that are relevant in computing a taxpayer's income, even though some parts and supplies do not relate closely to producing inventory for sale. For your information we are attaching copies of IT-51R2 and a Special Release thereto which deal specifically with supplies on hand at year end.

It is our opinion therefore that all of the above purchased items will be included in inventory for purposes of both paragraphs 28(1)(b) and (c), provided, of course, that the supplies are deductible expenditures of the taxpayer in the first instance.

We are unable to respond to your inquiry concerning the inventory elements for purposes of the federal sales tax rebate for inventory held for resale on December 31, 1990. That is the responsibility of Revenue Canada, Customs and Excise. Your inquiry may be directed to:

         F.S. Watson                                             

         Director General
         Policy and Legislation Branch
         Revenue Canada, Customs and Excise
         25 MacArthur Road
         Vanier, Ontario
         K1A 0L5

Yours sincerely,

for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch