GSW Appliances Ltd. v. Canada
A-69-94
Linden J.A.
18/11/97
12 pp.
Appeal from Trial Division decision disallowing inventory allowance deduction ([1993] 2 C.T.C. 325)-Appeal dismissed-Central question whether or not appellant held inventory which could be subject of inventory allowance deduction-To qualify for deduction, three conditions must be met: taxpayer must have property in goods which it can sell; goods must be described in taxpayer's inventory in respect of business carried on in year; goods must be held for sale in ordinary course of business, subject to distinction between finished and unfinished goods-Appellant GSW Ltd., in business of manufacturing and selling household appliances, wholly owned subsidiary of GSW-In September 1976, GSW entered into foundation agreement with Canadian General Electric Ltd. for purposes of integrating their respective major appliance businesses-They caused new company, CAMCO, to be incorporated to acquire all assets of subsidiaries of CGE and GSW, including assets of appellant-GSW entered into asset transfer agreement with CAMCO in December 1976, with closing date of January 4, 1977-Appellant then sought to claim deduction on value of its inventory authorized by Act, s. 20(1)(gg) for 1977, and carried back to 1976-MNR disallowed deduction-Trial Judge found appellant had already struck asset transfer agreement before commencement of 1977, therefore did not have tangible property held for sale in ordinary course of business, and confirmed disallowance-Bastion Management Ltd. v. Canada, [1995] 2 F.C. 709 (C.A.) should not be reconsidered in light of French version of text, not brought to attention of Court in Bastion-Nothing in French text leading to different interpretation of s. 20(1)(gg), in fact confirming interpretation in Bastion-Crucial to remember purpose behind provision: government subsidy delivered through tax system designed to help those businesses forced to carry inventory during inflationary periods-Rationale underlying provision having no application to appellant's situation: GSW Ltd. would not have suffered from either market fluctuations, or from inflation, as price had already been established by agreements signed in 1976-Therefore, whereas finished goods must also be held for sale in ordinary course of business, at all times during 1977 taxation year, appellant held goods for purposes of transferring them to CAMCO-Not held for sale in ordinary course of business to qualify for deduction of s. 20(1)(gg)-Income Tax Act, S.C. 1970-71-72, c. 63, s. 20(1)(gg) (as am. by S.C. 1977-78, c. 1, s. 14).