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:

  1. 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).
  2. The FCA’s interpretation may not be consistent with the “object, spirit and context” of the provisions (page 3).
  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).
  4.  The FCA’s comments were obiter dicta (page 4).