I-3 - Taxation Act

Section 524.1 Disposition versions

2006-03-01

524.1. Where the taxpayer referred to in section 518 carries on a farming business the income of which is computed in accordance with the cash method and the property disposed of as referred to in that section 518 was inventory owned by the taxpayer in connection with that business immediately before the time the property was disposed of to the corporation referred to in that section 518,

(a)  subject to subparagraphs b and c of the first paragraph of section 522 and notwithstanding paragraph c of section 524, the amount agreed on, if any, in accordance with section 522 in the prescribed form, in respect of inventory purchased by the taxpayer is deemed to be equal to the amount determined by the formula

[(A × B) / C] + D;

(a.1)  the amount referred to in section 521.2 in respect of inventory purchased by the taxpayer is deemed, where it would otherwise be less than the particular amount that would be determined in respect of the property by the formula in subparagraph a if no account were taken of the letter D, to be equal to that particular amount;

(b)  for the purposes of subparagraph a of the second paragraph of section 194, the disposition of the property and the receipt of proceeds of disposition therefor are deemed to have occurred at the particular time and in the course of carrying on the business; and

(c)  for the purposes of section 194, where the property of which the corporation has become the owner is in connection with a farming business and the income from that business is computed in accordance with the cash method,

i.  the corporation is deemed to have paid, at the particular time and in the course of carrying on that business, an amount equal to the cost to the corporation of the property, and

ii.  the corporation is deemed to have purchased the property at the particular time and in the course of carrying on that business, for an amount equal to that cost.

For the purposes of the formula set forth in subparagraph a of the first paragraph,

(a)  A is the amount that would be included, by reason of subparagraph c of the second paragraph of section 194, in computing the taxpayer’s income for his last taxation year commencing before the particular time referred to in the first paragraph if that taxation year had ended immediately before the particular time;

(b)  B is the value, determined in accordance with section 194.2, to the taxpayer immediately before the particular time, of the inventory purchased by him and in respect of which the election under section 518 is made;

(c)  C is the value, determined in accordance with section 194.2, of all of the inventory purchased by the taxpayer that was owned by him in connection with that business immediately before the particular time;

(d)  D is such additional amount as the taxpayer and the corporation designate in respect of the property.

1993, c. 16, s. 211; 1997, c. 3, s. 71; 1997, c. 85, s. 90.