The taxpayer purchased farm equipment from a corporation ("Case") for sale or lease. to farmers. In the case of a lease transaction, it entered into a lease of the equipment from a leasing company affiliate of Case ("Case Credit") at the same time as the taxpayer, in turn, leased the equipment to a farmer, generally for a term of five years. Case Credit held title to the equipment as security for the payment of lease payments by the taxpayer to Case Credit. In 75% of the leases with farmers, the farmers did not exercise their option to purchase the equipment on completion of the lease, in which event the taxpayer would sell the equipment.
Bowie J. found that the equipment was converted from inventory to capital property in the taxpayer's hands when the equipment commenced to be leased to a farmer, and it again changed character and became inventory once again when the equipment became available for sale by the taxpayer at the conclusion of the lease. He stated (at para. 8):
The characterization of an asset as inventory or depreciable capital asset may change from time to time depending on the circumstances, and in particular, the use to which the unit is being put at a given time: see Plaza Pontiac-Buick ... Canadian Kodak Sales ... . Equipment of which the appellant has taken possession and which is available to be sold or leased is properly treated as inventory. When it is either sold or leased, it is no longer available to be disposed of, and it ceases to be inventory.
Under these arrangements the taxpayer was found to be the beneficial owner of the equipment notwithstanding the holding of title by Case Credit. Accordingly, the taxpayer was eligible for investment tax credits in respect of the equipment.