Principal Issues:
(1) Whether damages received for the unlawful cancellation of a forest licence, the total of which includes cash already received and a new forest licence to be issued, is proceeds of disposition of the original licence that is receivable in the taxation year ended in which the new licence is issued.
(2) Whether in the taxation year ended in which the new licence is issued, subsection 44(1) of the Act will apply to calculate the gain from the disposition of the original licence and capital cost for the acquisition of the new licence, on the basis that the original licence is considered a former property of the company and the new licence is considered a replacement property for the original licence.
Position:
(1) Yes.
(2) Yes.
Reasons:
(1) The settlement agreement, and court order sanctioning the settlement agreement, both describe the damage payments as "compensation for property unlawfully taken". Paragraph (b) of the definition of proceeds of disposition in both section 54 and subsection 13(21), includes "compensation for property unlawfully taken". Section 44(2) of the Act deems the proceeds of disposition to be receivable in the taxation year that the taxpayer has agreed to an amount as full compensation, and therefore, the gain is included in income in the year the new licence is issued.
(2) Given the facts of this case, it is reasonable to consider the new licence a replacement property for the old licence.