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Inventory Value of Real Estate

February 13, 2018

Tax Question:

What is the tax treatment of inventory valuation related to real estate?


In real estate, once a property is being developed or held for resale it will generally be classified as inventory. It is important that inventory is valued properly as it can have a significant impact on net income year to year. 


Real property can be valued at the lower of cost or market value. The method used in valuing a corporation’s inventory must be consistently applied year to year. There must be an acceptable reason for changing methods and it must be acknowledged by Canada Revenue Agency (CRA). It is usually more favourable to value inventory at cost in real estate as prices do generally increase.

Once construction is complete and a property is sold, the inventory cost is transferred to the cost of goods sold. There are situations where a corporation may be required to write down their inventory value to fair market value. It is CRA’s position that if the property increases its value by any amount in the future up to the original cost, the increase must be recorded in the same tax year. The lower cost or market valuation must be done every year. The net realizable value is a common term used for the valuation of inventory and it is the net value of the inventory if it were sold (the selling price less selling costs).

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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