The corporate taxpayer transitioned to a perpetual inventory tracking system, resulting in an accounting error where the cost of certain inventory was not recognized in the years it was sold (2010 and 2011).
In 2012, the taxpayer attempted to correct this by writing down the value of the inventory and deducting its cost as a compensatory adjustment.
The Minister reassessed to disallow the deduction.
The Tax Court of Canada dismissed the taxpayer's appeal, holding that under the Income Tax Act, inventory can only be written down if it is held for sale, and the cost of inventory can only be deducted in the year it is sold, regardless of whether the adjustment was consistent with GAAP.
