In C.A.E. Inc. v. Canada, 2013 FCA 92, the Federal Court of Appeal (FCA) said that the change-in-use rules in s. 13(7) and s. 45(1) should apply when property, initially held as inventory, begins to be used as depreciable property (and vice versa). In 2013-0493811C6, the CRA disagreed with this view. The CRA will therefore continue to apply its position outlined IT-102R2 and IT-218R, i.e., that these change-in-use rules apply only where the use of property changes, in whole or part, from a personal use to an income-earning use (and vice versa). The CRA adopts this position because:
- The FCA’s view would require the same words to be interpreted differently for business property and personal use property; this problem was acknowledged by the FCA (page 3).
- The FCA’s interpretation may not be consistent with the “object, spirit and context” of the provisions (page 3).
- Reporting requirements and potential tax liability for every change from inventory to income-earning capital use, and vice versa, could represent a significant compliance and administrative burden (page 3).
- The FCA’s comments were obiter dicta (page 4).