Tax Court of Canada provides clarity on timing of allocating costs between different taxation years

In Yorkwest Plumbing Supply Inc. v. The Queen, 2020 TCC 122, due to a switch in the appellant’s accounting system the cost of inventory was not properly allocated against the cost of sales. The appellant attempted to overstate its cost of goods sold in a subsequent taxation year to make up for the difference in prior years. The Tax Court disallowed the taxpayer from doing so. As stated by the Tax Court judge: “[A]n unintentional understatement of the cost of goods sold in its 2010 and 2011 taxation years cannot be remedied by an intentional overstatement of the costs of goods sold in its 2012 taxation year. The cost of inventory is recognized in the taxation year in which it is sold … In tax law, timing matters.”

Prepared by: Leonard Gilbert , Morgan Watchorn

Leonard graduated from the University of Toronto, Faculty of Law (J.D. 2015) and is currently an associate practicing in the firm’s Toronto office. He previously performed extensively as a concert pianist and attended the Jacobs School of Music at Indiana… more »

During law school, Morgan worked as a teaching assistant in the Faculty of Law and served as a representative on the Faculty of Law Equity Committee. Morgan also competed in the Bowman National Tax Moot. Prior to law school, Morgan… more »

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