I-3 - Taxation Act

Section 565.2 Disposition versions

2006-03-01

565.2. Where a corporation that carries on a farming business and computes its income from that business in accordance with the cash method is wound up in circumstances to which sections 556 to 564.1 and 565 apply and, at the particular time that is immediately before the winding-up, owned inventory that was used in connection with the business, the following rules apply:

(a)  for the purposes of the first paragraph of section 557, the cost amount to the corporation, at the particular time, of property purchased by it that is included in the inventory is deemed to be the amount determined by the formula

[(A × B) / C] + D;

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

(c)  for the purposes of section 194, where the parent carries on a farming business and computes its income from that business in accordance with the cash method, the following rules apply:

i.  an amount equal to the cost to the parent of the inventory is deemed to have been paid by it in the course of carrying on a business and at the time it acquired the inventory, and

ii.  the parent is deemed to have purchased the inventory for an amount equal to that cost in the course of carrying on that business and at the time referred to in subparagraph i.

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 corporation’s income for its last taxation year commencing before the particular time referred to in the first paragraph if that taxation year had ended at that time,

(b)  B is the value, determined in accordance with section 194.2, to the corporation at that time of the inventory purchased by it and distributed to the parent on the winding-up,

(c)  C is the value, determined in accordance with section 194.2, of all of the inventory purchased by the corporation that was owned by it in connection with that business at that time,

(d)  D is the lesser of

i.  such additional amount as the corporation designates in respect of the property, and

ii.  the amount by which the fair market value of the property at the particular time referred to in the first paragraph exceeds the amount determined under subparagraph a in respect of the property.

1993, c. 16, s. 226; 1997, c. 3, s. 71.