,canada ,cu/oms                       #a
& ,rev5ue ,ag5cy

          ,9t]pret,n ,bullet9
    
,numb]3 ,,it-#dgc;,r
,date3 ,decemb] #ba1 #aiih
,subject3 ,9come ,tax ,act--,9v5tory
  ,valu,n
,ref];e3 ,sec;n #aj 7al ! def9i;n (
  89v5tory0 9 subsec;n #bdh7#a7 (!
  ,9come ,tax ,act & sec;n #ahja (!
  ,9come ,tax ,regul,ns7

  ,9t]pret,n bullet9s 7,,it's7 provide
,rev5ue ,canada's te*nical 9t]pret,ns (
9come tax law4 ,due 6_! te*nical nature1
,,it's >e us$ prim>ily 0de"p;tal /aff1
tax speciali/s1 & o!r 9dividuals :o h an
9t]e/ 9 tax matt]s4 ,= ^? r1d]s :o pref]
a less te*nical explan,n (! law1 !
,de"p;t (f]s o!r public,ns1 s* z tax
guides & pamphlets4
  ,:ile ! ,,it's d n h ! =ce ( law1 !y c
g5],y 2 reli$ ^u z reflect+ !         #a
              ,,it-#dgc;,r           a#a
,de"p;t's 9t]pret,n (! law 6be appli$ on
a 3si/5t basis 0de"p;tal /aff4 ,9 cases
": an ,,it has n yet be5 revis$ 6reflect
legislative *anges1 r1d]s %d ref] 6!
am5d$ legisl,n & xs e6ective date4
,simil>ly1 c\rt deci.ns subsequ5t 6!
date (! ,,it %d 2 3sid]$ :5 det]m9+ !
relevancy (! -;ts 9 ! ,,it4
  ,an 9t]pret,n describ$ 9 an ,,it
applies z (! date ! ,,it is publi%$1
un.s o!rwise specifi$4 ,:5 "! is a *ange
9 a previ\s 9t]pret,n &! *ange is
b5eficial 6taxpay]s1 x is usu,y e6ective
= all future assess;ts & reassess;ts4
,if ! *ange is n fav\ra# 6taxpay]s1 x w
norm,y 2 e6ective =! curr5t & subsequ5t
tax,n ye>s or = transac;ns 5t]$ 96af !
date (! ,,it4
  ,a *ange 9 a de"p;tal 9t]pret,n may al
2 ann\nc$ 9 ! ,9come ,tax ,te*nical
,news4
  ,if y h any -;ts reg>d+ matt]s 4cuss$
9 ? ,,it1 pl1se s5d !m to3
                                      #b
              ,,it-#dgc;,r           b#a
  ,director1 ,busi;s & ,public,ns
    ,divi.n
  ,9come ,tax ,rul+s & ,9t]pret,ns
    ,directorate
  ,policy & ,legisl,n ,bran*
  ,rev5ue ,canada
  #be ,ni*olas ,/reet
  ,ottawa ,,on
  ,k#a;,a #j;,l#e

  ,9t]pret,n bullet9s c 2 f.d on !
,rev5ue ,canada ,9t]net site at3
_+www.rc.gc.ca_:

                 ,3t5ts
    
,applic,n
,summ>y
,4cus.n & ,9t]pret,n
  ,m1n+ ( 8,9v5tory0 7p>agraph #a7
  ,det]m9,n ( ,quantities 7p>agraph #b7
  ,me?ods ( ,valu+ ,9v5tory
    ,! basic rule 7p>agraph #c7
                                      #c
              ,,it-#dgc;,r           c#a
    ,adv5ture 9 ! nature ( trade
      7p>agraphs #d-e7
    ,>ti/ic 5d1v\r 7p>agraph #f7
  ,*ange 9 ! ,me?od ( ,valu+ ,9v5tory
    7p>agraphs #g-i7
  ,m1n+ ( 8,co/0 7p>agraphs #aj-ad7
  ,me?od ( ,det]m9+ ,co/
    ,-monly us$ me?ods
      7p>agraphs #ae-af7
    ,retail 9v5tory me?od 7p>agraph #ag7
  ,m1n+ ( 8,fair ,m>ket ,value0
    7p>agraphs #ah-ba7
  ,o!r ,bullet9s 7p>agraph #bb7
,app5dix--,depreci,n 9 ,9v5tory
,explan,n ( ,*anges
  ,9troduc;n
  ,r1sons =! ,revi.n
  ,legislative & ,o!r ,*anges





                                      #d
               ,applic,n             d#a
    
  ,? bullet9 c.els & replaces ,9t]pret,n
,bullet9 ,,it-#dgc dat$ ,m>* #ag1 #aiha1
&! relat$ ,special ,rel1se dat$ ,april
#cj1 #aiic4

                ,summ>y
    
  ,9 -put+ a taxpay]'s 9come f a busi;s
=a tax,n ye>1 ! value ( prop]ty describ$
9 ! 9v5tory (! busi;s at ! 5d (! ye> m/
2 det]m9$4 ,sec;n #aj (! ,act & ,"p
,,xviii (! ,regul,ns set \ ! rules
p]ta9+ 6! valu,n ( 9v5tory = ? purpose4
  ,9 mo/ cases1 ei (! foll[+ two me?ods
( valu+ 9v5tory is availa#3
    --,valu,n ( ea* item 9 ! 9v5tory at
      ! co/ at : x 0 acquir$ or xs fair
      m>ket value at ! 5d (! ye>1 :i*"e
      is l[]4
--------------------------------------#b
    --,valu,n (! 5tire 9v5tory at xs
      fair m>ket value at ! 5d (! ye>4
                                      #e
              ,,it-#dgc;,r           a#b
  ,o!r me?ods ( valu+ 9v5tory may 2
availa# or requir$ dep5d+ on ! type (
busi;s4 ,= example1 prop]ty describ$ 9 !
9v5tory (a busi;s t is an adv5ture or
3c]n 9 ! nature ( trade m/ 2 valu$ at !
co/ at : ! taxpay] acquir$ ! prop]ty4
  ,? bullet9 4cusses ! rules p]ta9+ 6!
valu,n ( 9v5tory =! purposes ( -put+ a
taxpay]'s 9come f a busi;s4 ,x 4cusses !
availa# me?ods ( valu+ 9v5tory1 *ange 9
! me?od ( valu+ 9v5tory1 ! m1n+ ( 8co/10
! me?ods ( det]m9+ co/1 &! m1n+ ( 8fair
m>ket value40 ,=a li/ ( o!r relat$
bullet9s1 see p> #bb 2l4

          ,4cus.n & ,9t]pret,n
    
      ,m1n+ ( 8,9v5tory0 7p>agraph
                  #a7
    
#a4 ,subsec;n #bdh7#a7 def9es 89v5tory0
  z 8a descrip;n ( prop]ty ! co/ or
  value ( : is relevant 9 -put+ a
  taxpay]'s 9come f a busi;s =a       #f
              ,,it-#dgc;,r           b#b
  tax,n ye> or wd h be5 s relevant if !
  9come f ! busi;s _h n be5 -put$ 9
  a3ord.e )! ca% me?od &1 ) respect 6a
  f>m+ busi;s1 9cludes all (! live/ock
  held 9 ! c\rse ( c>ry+ on ! busi;s40
  ,see ! 9come tax guide call$ ,f>m+
  ,9come &! curr5t v].n ( ,,it-#ebf1
  ,f>m+--,ca% ,me?od ,9v5tory ,adju/;ts
  = -;ts on valu+ 9v5tory 9 a f>m+
  busi;s4 ,usu,y 9v5tory 9cludes all s*
  mat]ials 6: ! taxpay] has title1
  reg>d.s ( _! loc,n4 ,:e!r gds 9
  transit or gds on 3sign;t >e 6be
  9clud$ or exclud$ f an 9v5tory %d 2
  decid$ on ! basis ( :e!r or n !
  taxpay] has title 6! "picul> gds4

        ,det]m9,n ( ,quantities
             7p>agraph #b7
    
#b4 ,9 ! usual case1 a physical /ocktak+
  %d 2 c>ri$ \ at ! 5d (! ye>4 ,only ":
  a relia# p]petual 9v5tory sy/em is
  employ$1 & !n only :5 x has be5     #g
              ,,it-#dgc;,r           c#b
  p]iodic,y v]ifi$ 0ref];e 6actual
  quantities on h&1 w a physical c.t at
  ! ye> 5d n 2 requir$4

       ,me?ods ( ,valu+ ,9v5tory
    
      ,! basic rule 7p>agraph #c7
    
#c4 ,9 -put+ a taxpay]'s 9come f a
  busi;s =a tax,n ye>1 prop]ty describ$
  9 ! 9v5tory (! busi;s m/ 2 valu$ at !
  5d (! ye>4 ,subject 6! excep;ns
  describ$ 9 p>agraphs #d 6#f 2l1
  subsec;n #aj7#a7 (! ,act & sec;n #ahja
  (! ,regul,ns provide =! foll[+ me?ods
  ( valu+ 9v5tory3
  --,valu,n ( ea* item 9 ! 9v5tory at !
    co/ at : x 0 acquir$ or xs fair
    m>ket value at ! 5d (! ye>1 :i*"e is
    l[]4
  --,valu,n (! 5tire 9v5tory at xs fair
    m>ket value at ! 5d (! ye>4
  
                                      #h
              ,,it-#dgc;,r           d#b
  ,9 -p>+ 8co/0 & 8fair m>ket value0 9
  ord] 6det]m9e : is ! l[]1 ! -p>ison %d
  2 made sep>ately & 9dividu,y 9 respect
  ( ea* item 7or ea* usual class ( items
  if specific items >e n r1dily
  4t+ui%a#7 9 ! 9v5tory4 ,! l[] figure =
  ea* s* item1 or ea* s* class ( items1
  %d 2 ext5d$ & c>ri$ =w>d 9 >riv+ at !
  total value (! 9v5tory4 ,z an excep;n
  6? proc$ure1 h["e1 total co/s & total
  fair m>ket values %d 2 ! basis (
  -p>ison 9 cases ":1 al? sep>ate fair
  m>ket values = 9dividual items may 2
  "kn1 only an av]age co/ figure is
  availa#4 ,= 9=m,n p]ta9+ to 8co/0 see
  p>agraphs #aj 6#ag 2l1 &= 9=m,n p]ta9+
  to 8fair m>ket value0 see p>agraphs
  #ah 6#ba 2l4

      ,adv5ture 9 ! nature ( trade
            7p>agraphs #d-e7
    
#d4 ,if ! busi;s is an adv5ture or 3c]n
  9 ! nature ( trade1 subsec;n        #i
              ,,it-#dgc;,r           e#b
  #aj7#a.ja7 requires t ! prop]ty
  describ$ 9 ! 9v5tory (! busi;s 2 valu$
  at ! co/ at : ! taxpay] acquir$ !
  prop]ty4 ,subsec;n #aj7#a.ja7 applies
  6all tax,n ye>s 7fiscal p]iods 9 !
  case (a "pn]%ip7 o!r ?an ^? 5d+ 2f
  ,decemb] #ba1 #aiie = : ! 9v5tory (!
  busi;s 0 valu$1 "u =m] subsec;n
  #aj7#a71 at an am.t t is less ?an !
  co/ at : ! prop]ty 0 acquir$ & s*
  valu,n is reflect$ 9 an 9come tax
  return1 a notice ( objec;n or a notice
  ( app1l fil$ 2f ,decemb] #ba1 #aiie4
  ,9 a4i;n1 ? subsec;n does n apply 6a
  tax,n ye> or a fiscal p]iod t 5ds 2f
  ,decemb] #ba1 #aiie1 if ! fil+ due
  date 9 respect ( t ye> is af ,decemb]
  #bj1 #aiie4

  ,z m5;n$ abv1 = tax,n ye>s 7fiscal
  p]iods 9 ! case (a "pn]%ip7 5d+ 2f
  ,decemb] #ba1 #aiie1 prop]ty describ$
  9 ! 9v5tory (a busi;s t is an adv5ture
  or 3c]n 9 ! nature ( trade may h   #aj
              ,,it-#dgc;,r           f#b
  be5 valu$ us+ a me?od provid$ = "u =m]
  subsec;n #aj7#a74 ,0virtue ( subsec;n
  #aj7#i71 if1 =! la/ tax,n ye> 7fiscal
  p]iod 9 ! case ( "pn]%ip7 t ! prop]ty
  0 valu$ "u =m] subsec;n #aj7#a71 !
  prop]ty 0 valu$ at an am.t less ?an !
  co/ at : ! taxpay] acquir$ ! prop]ty1
  ! co/ ( s* prop]ty 6! taxpay] af t "t
  is deem$ 6be t l[] am.t4

  ,=a 4cus.n ( an adv5ture or 3c]n 9 !
  nature ( trade1 see ! curr5t v].n (
  ,,it-#dei1 ,adv5ture or ,3c]n 9 !
  ,nature ( ,trade4
#e4 ,"u subsec;n #aj7#aj71 if ! taxpay]
  is a corpor,n & "! is an acquisi;n (
  3trol (! corpor,n1 ! prop]ty describ$
  9 ! 9v5tory (! corpor,n's busi;s t is
  an adv5ture or 3c]n 9 ! nature ( trade
  m/ 2 valu$1 at ! 5d (! tax,n ye> t 5ds
  immly 2f ! acquisi;n ( 3trol1 at ! co/
  at : ! corpor,n acquir$ ! prop]ty or
  xs fair m>ket value at ! 5d (! ye>1
  :i*"e is l[]4 ,af                  #aa
              ,,it-#dgc;,r            #c
  t "t1 ! co/ at : ! corpor,n acquir$ !
  prop]ty is deem$ 6be t l[] am.t4 ,!
  applic,n date = subsec;n #aj7#aj7 is !
  same z ! applic,n date = subsec;n
  #aj7#a.ja7 7see p>agraph #d abv74 ,=a
  4cus.n on 8acquisi;n ( 3trol10 see !
  curr5t v].n ( ,,it-#cjb1 ,losses (a
  ,corpor,n--,! ,e6ect t ,acquisi;ns (
  ,3trol1 ,amalgam,ns1 & ,w9d+s-up h on
  ,_! ,deductibil;y--,af ,janu>y #ae1
  #aihg4

      ,>ti/ic 5d1v\r 7p>agraph #f7
    
#f4 ,9 -put+ ! 9come ( an 9dividual 7o!r
  ?an a tru/7 f a busi;s t is !
  9dividual's >ti/ic 5d1v\r1 ! 9dividual
  may1 "u subsec;n #aj7#f71 elect 6value
  ! 9v5tory ( t busi;s at nil4 ,a
  8busi;s t is an 9dividual's >ti/ic
  5d1v\r0 is def9$ 9 subsec;n #aj7#h7
  6m1n ! busi;s ( cr1t+ pa9t+s1 pr9ts1
  et*+s1 draw+s1 sculptures or simil>
  "ws ( >t1 ": s* "ws ( >t >e        #ab
              ,,it-#dgc;,r           a#c
  cr1t$ 0! 9dividual1 b does n 9clude a
  busi;s ( reproduc+ "ws ( >t4 ,= m
  9=m,n1 see ! curr5t v].n ( ,,it-#ejd1
  ,visual ,>ti/s & ,writ]s4

       ,*ange 9 ! ,me?od ( ,valu+
       ,9v5tory 7p>agraphs #g-i7
    
#g4 ,"u subsec;n #aj7#b.a71 ": ! 9v5tory
  (a busi;s 7o!r ?an a busi;s t is an
  adv5ture or 3c]n 9 ! nature ( trade7
  is valu$ at ! 5d (a tax,n ye> 9
  a3ord.e )a me?od provid$ = "u sec;n
  #aj1 t me?od m/1 except ": ! taxpay]
  elects 6value ! 9v5tory at nil "u
  subsec;n #aj7#f7 7see p>agraph #f
  abv71 2 us$ 6value ! 9v5tory (! busi;s
  at ! 5d (! foll[+ ye> un.s a *ange 9
  me?od ( valu+ 9v5tory is approv$ 0!
  ,m9i/]4 ,note t subsec;n #aj7#b.a7
  applies 6! me?od ( valu+ prop]ty
  describ$ 9 an 9v5tory 7see p>agraph #c
  abv7 & n 6! me?od ( det]m9+ ! co/ or !
  fair m>ket value ( s* prop]ty4     #ac
              ,,it-#dgc;,r           b#c
  ,= example1 a taxpay] valu$ ! 9v5tory
  (a busi;s at ! 5d (! #aiig tax,n ye>
  at ! l[] (! co/ at : x 0 acquir$ & xs
  fair m>ket value4 ,! taxpay] us$ !
  av]age co/ me?od 6det]m9e ! co/ (!
  prop]ty = ? purpose4 ,at ! 5d (! #aiih
  tax,n ye>1 ! taxpay] wi%es 6value !
  5tire 9v5tory at xs fair m>ket value4
  ,z ! me?od ( valu+ 9v5tory is *ang+
  7i4e41 f ! l[] ( co/ & fair m>ket
  value 6fair m>ket value71 ! approval
  (! ,m9i/] "u subsec;n #aj7#b.a7 is
  requir$ 9 ? situ,n4 ,if1 h["e1 at ! 5d
  (! #aiih tax,n ye>1 ! taxpay] 3t9ues
  6value ! 9v5tory at ! l[] ( co/ & fair
  m>ket value1 b wi%es 6use ! f/ in1 f/
  \ me?od 6det]m9e ! co/ (! 9v5tory1 !
  approval (! ,m9i/] "u subsec;n
  #aj7#b.a7 wd n 2 requir$4 ,= 9=m,n
  p]ta9+ 6! det]m9,n (! co/ or ! fair
  m>ket value ( prop]ty describ$ 9 an
  9v5tory1 see p>;s #aj 6#ba 2l4
#h4 ,a *ange 9 ! me?od ( valu+ 9v5tory w
  g5],y 2 approv$ 0! ,m9i/] if x c   #ad
              ,,it-#dgc;,r           c#c
  2 %[n t1 3sid]+ ! circum/.es1 ! new
  me?od3
  --is a m appropriate way ( -put+ !
    taxpay]'s 9come2
  --w 2 us$ = f9ancial /ate;t purposes
    0! taxpay]2 &
  --w 2 us$ 3si/5tly 9 subsequ5t ye>s4

  ,if a *ange 9 valu,n me?ods is desir$1
  ! taxpay] or an au?oriz$ repres5tative
  %d write 6! ,director (! tax s]vices
  (fice 9 ! taxpay]'s region & set \ !
  r1sons :y ! new me?od is m
  appropriate4 ,! lr %d provide3
  --relevant f9ancial /ate;ts & tax
    s*$ules2
  --a summ>y (! e6ect (! *ange on !
    f9ancial /ate;ts2
  --a /ate;t t ! new me?od is 9 a3ord.e
    )! f9ancial /ate;ts2 &
  --an "utak+ t ! new me?od w 2 us$
    3si/5tly 9 subsequ5t tax,n ye>s4
  
                                     #ae
              ,,it-#dgc;,r           d#c
  ,! reque/ %d norm,y 2 made 2f !
  taxpay] files an 9come tax return =!
  ye> (! 3templat$ *ange4
#i4 ,subsec;n #aj7#b7 provides t !
  9v5tory at ! 2g9n+ (a tax,n ye> (a
  busi;s % 2 valu$ at ! same am.t z !
  am.t at : ! 9v5tory 0 valu$ at ! 5d (!
  immly prec$+ ye>4

  ,subsec;n #aj7#c7 provides a me*anism
  ":by ! ,de"p;t c *ange ! me?od us$
  6value 9v5tory at ye> 5d f an
  una3epta# 6an a3epta# me?od )\t al
  adju/+ ! value (! 9v5tory at ! />t (!
  ye>4 ,= example1 if a taxpay]1 )a
  ,decemb] #ca ye> 5d1 has = s"eal ye>s
  calculat$ ! value (! 9v5tory us+ an
  9appropriate me?od &! ,de"p;t det]m9es
  t valu+ ! 9v5tory at ! l[] ( co/ &
  fair m>ket value = ea* item produces
  an appropriate 9come = #aiig1 !
  ,de"p;t may assess ! 9come = t ye> us+
  ! redet]m9$ valu,n =! clos+ 9v5tory &!
  ,m9i/] may issue a direc;n "u      #af
              ,,it-#dgc;,r           e#c
  subsec;n #aj7#c7 deem+ t ! #aiig op5+
  9v5tory 0 prop]ly valu$4 ,? direc;n
  prev5ts ! taxpay] f redet]m9+ ! #aiig
  op5+ 9v5tory :1 pursuant 6subsec;n
  #aj7#b71 wd necessitate revis+ ! clos+
  9v5tory = #aiif4

             ,m1n+ ( 8,co/0
           7p>agraphs #aj-ad7
    
#aj4 8,co/0 z us$ 9 ! phrase 8co/ at : !
  taxpay] acquir$ ! prop]ty0 9 sec;n #aj
  m1ns ! orig9al co/ (! "picul> item (
  9v5tory plus all co/s : may r1sonably
  2 3sid]$ z hav+ be5 9curr$ 6br+ t
  "picul> item ( 9v5tory 6xs 3di;n &
  loc,n at ! 5d (! tax,n ye>4
--------------------------------------#d
#aa4 ,9 ! case ( 9v5tories ( m]*&ise
  pur*as$ = resale or ( raw mat]ials
  acquir$ =a manufactur+ process1 co/
  m1ns laid-d[n co/4 ,? 9cludes 9voice
  co/1 cu/oms & excise duties1
                                     #ag
              ,,it-#dgc;,r           a#d
  transport,n & o!r acquisi;n co/s &1 ":
  !y >e significant1 /orage co/s4
#ab4 ,9 ! case ( 9v5tories ( "w 9
  process & f9i%$ gds1 co/ m1ns ! laid-
  d[n co/ ( mat]ials plus ! co/ ( direct
  lab\r appli$ 6! product &! applica#
  %>e ( ov]h1d exp5se prop]ly *>gea#
  6produc;n4 ,ei direct co/+1 :
  allocates v>ia# ov]h1ds 69v5tory1 or
  absorp;n co/+1 : allocates bo? v>ia# &
  fix$ ov]h1ds 69v5tory1 is a3epta# z a
  me?od ( co/+ 9v5tory1 b ! me?od us$ %d
  2 ! "o t gives ! tru] picture (!
  taxpay]'s 9come4 ,prime co/+1 a me?od
  9 : no ov]h1d is allocat$ 69v5tory1 is
  n a3ept$ = 9come tax purposes z a
  me?od ( co/+ 9v5tory4 ,ag1 ": !y >e
  significant1 /orage co/s %d 2 reflect$
  9 product co/4
#ac4 ,taxpay]s :o foll[ ! practice (
  9clud+ an all[.e 9 respect (
  depreci,n1 obsolesc;e or deple;n 9
  9v5tory >e requir$ 0p>agraph
  #ab7#a77r7 69clude 9 9come an      #ah
              ,,it-#dgc;,r           b#d
  am.t equal 6! por;n (! co/ am.t (! ye>
  5d 9v5tory repres5t+ ? all[.e4 ,! am.t
  9clud$ 9 9come "u p>agraph #ab7#a77r7
  is deducti# 9 ! foll[+ ye> "u p>agraph
  #bj7#a77;ii71 z illu/rat$ 9 !
  ,app5dix4
#ad4 ,9 "s manufactur+ organiz,ns only
  /&>d co/s >e develop$4 ,9 s* cases1
  8/&>d co/0 is an a3epta# basis =
  9v5tory valu,n provid$ t "! is no
  significant v>i,n 2t ! a7regate /&>d
  co/s &! a7regate actual co/s prop]ly
  applica# 6! 9v5tory4 ,if actual co/s &
  /&>d co/s >e sub/anti,y di6]5t1 x is
  usual 6adju/ ! /&>d co/ 6e/imat$
  actual co/s 0apply+ a p]c5tage factor
  bas$ on produc;n4






                                     #ai
         ,me?od ( ,det]m9+ ,co/      c#d
    
           ,-monly us$ me?ods
           7p>agraphs #ae-af7
    
#ae4 ,": x is practical 6id5tify co/s
  0ref];e 6specific items1 ! co/ is
  det]m9$ 0asc]ta9+ ! laid-d[n co/ (!
  specific items4 ,if x is n practical
  6det]m9e co/ 0ref];e 6specific items1
  x is nec 6use an >bitr>y co/ selec;n
  me?od : has ! e6ect ( mak+ a presump;n
  z 6! ord] 9 : 9v5tory is sold4 ,am;g !
  me?ods mo/ -monly us$ 9 det]m9+ co/
  >e3
  --specific item
  --av]age co/
  --f/ in1 f/ \ 7fifo7

  ,! la/ in1 f/ \ me?od 7lifo7 &! base
  /ock me?od >e n a3ept$ = 9come tax
  purposes z me?ods ( det]m9+ co/4
#af4 ,! me?od us$ 9 det]m9+ co/ = 9come
  tax purposes %d norm,y 2 ! same z !
  me?od us$ = f9ancial /ate;t        #bj
              ,,it-#dgc;,r           d#d
  purposes4 ,h["e1 if "! is m ?an "o
  a3epta# me?od ( det]m9+ co/ ac 6g5],y
  a3ept$ a3.t+ pr9ciples1 ! me?od us$ =
  9come tax purposes %d 2 ! "o t gives !
  tru] picture (! taxpay]'s 9come4 ,!
  me?od us$ m/ al 2 foll[$ 3si/5tly f
  ye> 6ye> &a *ange w only 2 a3ept$ if !
  new me?od is m r1li/ic 9 ! circum/.es
  & gives ! tru] picture (! taxpay]'s
  9come4

         ,retail 9v5tory me?od
             7p>agraph #ag7
    
#ag4 ,! retail 9v5tory me?od is g5],y
  a3epta# 6! ,de"p;t if x meets all (!
  foll[+ 3di;ns3
  --,! me?od is us$ only ": "! >e _m
    di6]5t -modities = resale1 e4g41 a
    groc]y /ore or a de"p;t /ore4
  --,! values >e e/abli%$ 9 a3ord.e )
    g5],y a3ept$ a3.t+ pr9ciples4
  
                                     #ba
              ,,it-#dgc;,r           e#d
  --,! values s e/abli%$ >e us$ = bo?
    tax & f9ancial /ate;t purposes4
  
     ,m1n+ ( 8,fair ,m>ket ,value0
           7p>agraphs #ah-ba7
    
#ah4 ,except z 9dicat$ 9 p>agraph #ai
  2l1 ! t]m 8fair m>ket value10 z us$ 9
  sec;n #aj (! ,act & sec;n #ahja (!
  ,regul,ns1 is synonym\s )! ^w 8m>ket0
  : is us$ 9 ! a3.t+ phrase 8l[] ( co/
  or m>ket40 ,! t]m g5],y ref]s 6ei
  replace;t co/ or net r1liza# value4 ,!
  me?od us$ 9 det]m9+ 8fair m>ket value0
  = 9come tax purposes %d norm,y 2 !
  same z ! me?od us$ 6det]m9e 8m>ket0 =
  f9ancial /ate;t purposes4 ,h["e1 if "!
  is m ?an "o a3epta# me?od ( det]m9+
  8m>ket0 ac 6g5],y a3ept$ a3.t+
  pr9ciples1 ! me?od us$ 9 det]m9+ 8fair
  m>ket value0 = 9come tax purposes %d 2
  ! "o t gives ! tru] picture (!
  taxpay]'s 9come4 ,! me?od us$ m/ al 2
  foll[$ 3si/5tly f ye> 6ye> &a      #bb
              ,,it-#dgc;,r           f#d
  *ange w only 2 a3ept$ if ! new me?od
  is m r1li/ic 9 ! circum/.es & gives !
  tru] picture (! taxpay]'s 9come4
#ai4 ,"u p>agraph #aj7#d77a71 ! fair
  m>ket value ( "w 9 progress (a busi;s
  t is a profes.n m1ns ! am.t t c
  r1sonably 2 expect$ 62come receiva# 9
  respect "!( af ! 5d (! ye>4 ,"u
  p>agraph #aj7#d77b71 ! fair m>ket
  value ( adv]tis+ or packag+ mat]ial1
  "ps1 supplies or o!r simil> prop]ty (a
  busi;s m1ns ! replace;t co/ (! prop]ty
  except ": s* prop]ty is obsolete1
  damag$ or defective1 or un.s ! taxpay]
  is 9 ! busi;s ( sell+ or l1s+ s*
  prop]ty4
#bj4 ,! use ( replace;t co/ 9 det]m9+
  fair m>ket value may n give a prop]
  result ": gds or mat]ials h det]iorat$
  9 value 0ye>-5d 6! ext5t
--------------------------------------#e
  t !y _c 2 4pos$ ( 9 ! normal way
  7i4e41 ^? gds or mat]ials t >e 9 s*
  3di;n t a taxpay] wd h 6de"p f !   #bc
              ,,it-#dgc;,r           a#e
  normal m]*&is+ proc$ure 9 ord] 64pose
  ( !m74 ,9 s* a case1 ! use ( net
  r1liza# value 7! e/imat$ sell+ price 9
  ! ord9>y c\rse ( busi;s less r1sonably
  predicta# prep>,n & m>ket+ co/s7 9
  det]m9+ ! fair m>ket value = ^! gds or
  mat]ials w 2 a3ept$1 not)/&+ t !
  taxpay] may use replace;t co/ 9
  det]m9+ ! fair m>ket value =! rema9d]
  (! 9v5tory4
#ba4 ,reg>d.s (! me?od us$ 6det]m9e fair
  m>ket value1 a reduc;n 9 9v5tory value
  6reflect losses t >e anticipat$ af !
  ye>-5d is n a3epta#4 ,al1 ! record+ (a
  loss on 9v5tory a3.t 9 ! curr5t tax,n
  ye> 9 ord] 6pres]ve a regul> 7or any7
  pr(it m>g9 =! subsequ5t ye> ( 4posi;n
  is n a3epta#4

     ,o!r ,bullet9s 7p>agraph #bb7
    
#bb4 ,9 3nec;n )! subject matt] ( ?
  bullet91 ! curr5t v].n ( "o or m (!
  foll[+ bullet9s may 2 ( 9t]e/3     #bd
              ,,it-#dgc;,r           b#e
  ,,it-#ea ,supplies on ,h& at ! ,5d (a
    ,fiscal ,p]iod
  ,,it-#aec ,l& ,develop]s--,subdivi.n &
    ,develop;t ,co/s & ,c>ry+ ,*>ges on
    ,l&
  ,,it-#afe ,returna# ,3ta9]s
  ,,it-#bhc ,capital ,co/ ,all[.e--
    ,video ,tapes1 ,videotape
    ,cassettes1 ,films1 ,-put] ,s(tw>e &
    ,ma/] ,record+ ,m$ia
  ,,it-#cjb ,losses (a ,corpor,n--,!
    ,e6ect t ,acquisi;ns ( ,3trol1
    ,amalgam,ns1 & ,w9d+s-up h on ,_!
    ,deductibil;y--,af ,janu>y #ae1
    #aihg
  ,,it-#cbh ,losses on ,%>es on ,:
    ,divid5ds ,h ,be5 ,rcvd
  ,,it-#deg ,elec;n 0,profes.nals
    6,exclude ,"w 9 ,progress f ,9come
  ,,it-#dei ,adv5ture or ,3c]n 9 !
    ,nature ( ,trade
  ,,it-#dhb ,capital ,co/ ,all[.e--
    ,pipel9es
  ,,it-#dhc ,cr$it ,unions           #be
              ,,it-#dgc;,r           c#e
  ,,it-#eja ,capital ,co/ ,all[.e--,lo7+
    ,assets
  ,,it-#ejd ,visual ,>ti/s & ,writ]s
  ,,it-#ebf ,f>m+--,ca% ,me?od ,9v5tory
    ,adju/;ts
--------------------------------------#f
         ,app5dix--,depreci,n 9
                ,9v5tory
    
,assume """""""""""""""""""""""" ,ye> #a
,9v5tory at 2g9n+ ( ye> """"""""" 4#j.jj
,co/ ( sales """""""""""""""""" 4#hj1jjj
,9v5tory at 5d ( ye> """""""""" 4#bj1jjj
,depreci,n = ye> """"""""""""""" 4#e1jjj
,depreci,n 9clud$ 9 clos+
  9v5tory """""""""""""""""""""" 4#a1jjj
,net 9come = ye> p] f9ancial
  /ate;ts """"""""""""""""""""" 4#ej1jjj





                                     #bf
              ,,it-#dgc;,r           a#f
  ,-put+ ,net ,9come = ,tax
    ,purposes
,net 9come =! ye>
  p] f9ancial
  /ate;ts """"""""""""""""""""" 4#ij1jjj
,add3 ,depreci,n
  9clud$ 9 op5+
  9v5tory """""""""" 4#a1jjj
,depreci,n = ye> "" 4#aj1bej
,less3 ,depreci,n
  9clud$ 9 clos+
  9v5tory """"""""" 74#a1bej7   4#aj1jjj
,net 9come = tax
  purposes 2f ,,cca """""""""" 4#ajj1jjj
,add3 ,adju/;t
  requir$ 0p>agraph
  #ab7#a77r7 """"""" 4#a1bej
,deduct3 ,adju/;t
  requir$ 0p>agraph
  #bj7#a77;ii7 """" 74#a1jjj7 """" 4#bej
,net 9come = tax
  purposes 2f ,,cca """""""""" 4#ajj1bej

                                     #bg
              ,,it-#dgc;,r           b#f
,assume """""""""""""""""""""""" ,ye> #b
,9v5tory at 2g9n+ ( ye> """"""" 4#bj1jjj
,co/ ( sales """"""""""""""""" 4#bjj1jjj
,9v5tory at 5d ( ye> """""""""" 4#be1jjj
,depreci,n = ye> """""""""""""" 4#aj1bej
,depreci,n 9clud$ 9 clos+
  9v5tory """""""""""""""""""""" 4#a1bej
,net 9come = ye> p] f9ancial
  /ate;ts """"""""""""""""""""" 4#ij1jjj

  ,-put+ ,net ,9come = ,tax
    ,purposes
,net 9come =! ye>
  p] f9ancial
  /ate;ts """"""""""""""""""""" 4#ej1jjj
,add3 ,depreci,n
  9clud$ 9 op5+
  9v5tory """"""""""" 4#j.jj
,depreci,n = ye> """ 4#e1jjj
,less3 ,depreci,n
  9clud$ 9 clos+
  9v5tory """"""""" 74#a1jjj7 "" 4#d1jjj

                                     #bh
              ,,it-#dgc;,r           c#f
,net 9come = tax
  purposes 2f ,,cca """"""""""" 4#ed1jjj
,add3 ,adju/;t
  requir$ 0p>agraph
  #ab7#a77r7 """"""" 4#a1jjj
,deduct3 ,adju/;t
  requir$ 0p>agraph
  #bj7#a77;ii7 """""" 4#j.jj """ 4#a1jjj
,net 9come = tax
  purposes 2f ,,cca """"""""""" 4#ee1jjj













                                     #bi
          ,explan,n ( ,*anges         #g
    
               ,9troduc;n
    
  ,! purpose (! ,explan,n ( ,*anges is
6give ! r1sons =! revi.ns 6an 9t]pret,n
bullet94 ,x \tl9es revi.ns t we h made z
a result ( *anges 6! law1 z well z
*anges reflect+ new or revis$ de"p;tal
9t]pret,ns4

           ,r1sons =! ,revi.n
    
  ,? bullet9 is 2+ revis$ 6reflect
am5d;ts 6! ,9come ,tax ,act 5act$
0,s4,c4 #aiih1 c4 #ai 7=m]ly ,bill
;,c-#bh74 ,g5],y1 ! am5d;ts cl>ify t
prop]ty describ$ 9 ! 9v5tory (a busi;s t
is an adv5ture or 3c]n 9 ! nature (
trade is 6be valu$ at ! 5d (! ye> at co/
& n1 = example1 at ! l[] ( co/ & fair
m>ket value z all[$ 9 subsec;n #aj7#a74
,? is 9 l9e )! ,de"p;t's hi/orical
policy t any 9come or loss f s* prop]ty
is recogniz$ only on 4posi;n4 ,^!    #cj
              ,,it-#dgc;,r           a#g
am5d;ts respond 6! deci.n (! ,supreme
,c\rt ( ,canada 9 ,jake ,fries5 v4 ,h]
,maje/y ! ,que51 ,7#aiie7' #b ,,ctc
#cfi1 #ie ,,dtc #eeea1 9 : x 0 held t !
rules apply+ 6! valu,n ( busi;s 9v5tory
=! purpose ( -put+ 9come f busi;s al
apply 6prop]ty held z an adv5ture or
3c]n 9 ! nature ( trade1 ?us all[+
losses on s* prop]ty 6be recogniz$ prior
6! ye> ( 4posi;n4 ,! -;ts 9 ? bullet9 >e
n a6ect$ 0any o!r draft legisl,n rel1s$
2f ,decemb] #c1 #aiih4

      ,legislative & ,o!r ,*anges
    
  ,p>agraph #c 3ta9s 9=m,n f =m]
p>agraphs #d & #ae4 ,x reflects two
cl>ify+ am5d;ts made 6subsec;n #aj7#a74
,! f/ am5d;t *anges ! phrase 8co/ 6!
taxpay]0 to 8co/ at : ! taxpay] acquir$
! prop]ty40 ,! purpose ( ? am5d;t is
6cl>ify t :5 prop]ty describ$ 9 an
9v5tory is valu$ at ! l[] ( co/ & fair
m>ket value1 ! ref];e 6co/ is 6!     #ca
              ,,it-#dgc;,r           b#g
orig9al co/ (! prop]ty & n xs la/ l[e/
value4 ,? 5sures t 9v5tory t has be5
writt5 d[n is adju/$ upw>ds if ! 9v5tory
subsequ5tly 9cr1ses 9 value4 ,! second
am5d;t *anges ! t]m 8fair m>ket value0
to 8fair m>ket value at ! 5d (! ye>40
  ,new p>agraph #d reflects new
subsec;ns #aj7#a.ja7 & #aj7#i74
,subsec;n #aj7#a.ja7 requires t !
9v5tory (a busi;s t is an adv5ture or
3c]n 9 ! nature ( trade 2 valu$ at ! co/
at : ! taxpay] acquir$ ! prop]ty4
,subsec;n #aj7#i7 provides t1 ": prop]ty
describ$ 9 an 9v5tory (a busi;s t is an
adv5ture or 3c]n 9 ! nature ( trade has
be5 writt5-d[n "u =m] subsec;n #aj7#a7
=a tax,n ye> = : t valu,n me?od 0
availa#1 ! co/ (! prop]ty 6! taxpay] af
t "t is deem$ 6be ! value la/ assign$ 0!
taxpay] "u =m] subsec;n #aj7#a74 ,^!
subsec;ns apply 6all tax,n ye>s 7fiscal
p]iods 9 ! case (a "pn]%ip7 o!r ?an ^?
5d+ 2f ,decemb] #ba1 #aiie = : ! 9v5tory
(! busi;s 0 valu$1 "u =m] subsec;n   #cb
              ,,it-#dgc;,r           c#g
#aj7#a71 at an am.t t is less ?an ! co/
at : ! prop]ty 0 acquir$ & s* valu,n is
reflect$ 9 an 9come tax return1 a notice
( objec;n or a notice ( app1l fil$ 2f
,decemb] #ba1 #aiie4 ,9 a4i;n1 ! am5d;ts
d n apply 6a tax,n ye> or a fiscal p]iod
t 5ds 2f ,decemb] #ba1 #aiie1 if ! fil+
due date 9 respect ( t ye> is af
,decemb] #bj1 #aiie4
  ,new p>agraph #e reflects new subsec;n
#aj7#aj74 ,? subsec;n requires t a3ru$
losses 9 ! 9v5tory (a busi;s t is an
adv5ture or 3c]n 9 ! nature ( trade 2
recogniz$ 9 ! tax,n ye> t is deem$ 65d
0virtue ( subsec;n #bdi7#d7 immly 2f an
acquisi;n ( 3trol4 ,? is 3si/5t ) h[
a3ru$ losses on o!r 9v5tory >e tr1t$ on
an acquisi;n ( 3trol4 ,subsec;n #aj7#aj7
al deems ! co/ (! prop]ty 6! taxpay] af
! acquisi;n ( 3trol 6be ! l[] (! co/ &!
fair m>ket value (! prop]ty immly 2f !
acquisi;n4 ,new subsec;n

                                     #cc
              ,,it-#dgc;,r           d#g
#aj7#aj7 has ! same applic,n date z new
subsec;n #aj7#a.ja7 7see ! abv -;ts =
new p>agraph #d74
  ,p>agraph #f 3ta9s 9=m,n f =m]
p>agraph #d4 ,x has be5 exp&$ 6provide !
def9i;n =a 8busi;s t is an 9dividual's
>ti/ic 5d1v\r40
  ,p>agraph #g 3ta9s 9=m,n f =m]
p>agraph #d4 ,x cl>ifies t subsec;n
#aj7#b.a7 does n apply 6prop]ty describ$
9 ! 9v5tory (a busi;s t is an adv5ture
or 3c]n 9 ! nature ( trade4 ,x al
cl>ifies t subsec;n #aj7#b.a7 does n
apply 9 ! det]m9,n (! me?od 6be us$ 9
det]m9+ ! co/ or fair m>ket value (
prop]ty4 ,9 o!r ^ws1 subsec;n #aj7#b.a7
does n g 2y ! det]m9,n (! me?od (
9v5tory valu,n 6be select$ f am;g !
/atutory alt]natives4
  ,p>agraph #aj 7=m] p>agraph #f7 has
be5 revis$ 6reflect ! phrase 8co/ at : !
taxpay] acquir$ ! prop]ty0 3ta9$ 9 !
am5d;ts 6sec;n #aj4 ,? phrase cl>ifies t
:5 prop]ty describ$ 9 an 9v5tory     #cd
              ,,it-#dgc;,r           e#g
is valu$ at ! l[] ( co/ & fair m>ket
value1 ! ref];e 6co/ is 6! orig9al co/
(! prop]ty & n xs la/ l[e/ value4 ,?
5sures t 9v5tory t has be5 writt5 d[n is
adju/$ upw>ds if ! 9v5tory subsequ5tly
9cr1ses 9 value4
  ,p>agraph #ab 7=m] p>agraph #h71
p>agraph #af 7=m] p>agraph #af71 &
p>agraph #ah 7f =m] p>agraphs #ab & #af7
h be5 revis$ 6cl>ify t if a taxpay] c
select f am;g a numb] ( a3.t+ me?ods1
ea* "o 2+ 9 a3ord.e ) g5],y a3ept$ a3.t+
pr9ciples1 ! me?od us$ = 9come tax
--------------------------------------#h
purposes %d 2 ! "o t pres5ts ! tru]
picture (! taxpay]'s 9come4 ,? posi;n is
support$ 0! deci.n 9 ,we/ ,koot5ay ,p[]
& ,li<t ,-pany ,limit$ v4 ,! ,que51 #ib
,,dtc #fjbc1 ,7#aiib7' #a ,,ctc #ae4
  ,p>agraph #bb 7=m] p>agraph #ah7 has
be5 exp&$ 69clude o!r bullet9s t may 2 (
9t]e/ 6! r1d]4
  ,! illu/r,n 9 ! ,app5dix has be5 am5d$
& 9=m,n t is n relevant =!           #ce
              ,,it-#dgc;,r           a#h
purposes ( curr5t tax,n ye>s has be5
delet$4
  ,we h made a numb] ( o!r *anges
6improve ! ov]all cl>;y & r1dabil;y (!
bullet94


















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