Can I deduct merchandise that is still unsold at year-end?

Arsen Accounting Services · Question 132 · Sources checked October 29, 2026

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For a business selling goods, buying inventory is not always the same as deducting the full purchase immediately. Year-end inventory is used to calculate cost of goods sold, which helps match the cost of merchandise with the goods sold during the year.

Count what you still own

CRA requires an annual inventory and permits specified valuation methods. Consistency matters after a method is chosen. Include goods held for sale, and consider work in progress or materials where the business manufactures products.

Do not rely only on purchase receipts or the balance in your bank account. Inventory can be in storage, at another location, or held through a selling platform. Identify ownership as well as physical location.

Official guidance: [1], [2].

A simple illustration

Assume a reseller starts with no stock, buys $10,000 of merchandise, and has $4,000 of closing inventory under the appropriate valuation method. Ignoring other adjustments, the cost attached to sold goods is $6,000, not the full $10,000 purchased. This illustrates why a December bulk purchase may not create the immediate deduction expected.

Prepare an inventory schedule

• Item descriptions, quantities, and purchase costs.
• Shipping and other costs needed to bring stock into saleable condition.
• Locations and ownership details for goods held elsewhere.
• Evidence supporting damaged, obsolete, or reduced-value items.

Keep the count date and explain adjustments for sales or purchases around year-end. Do not write stock down merely because it has been slow to sell; support the chosen value. Give the preparer opening inventory from the prior return so the two years connect correctly.