17 December 1998 External T.I. 9830365 - SALE OF STANDING TIMBER

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether the sale of standing timber is on account of income or capital.

Position:

It is a question of fact that is usually determined on a prospective basis.

Reasons:

See Information Circular 70-6R3 and numerous correspondence.

XXXXXXXXXX 983036
J. E. Grisé
December 17, 1998

Dear XXXXXXXXXX:

Re: Sale of Standing Timber

Your letter of September 11, 1998 to our Sudbury Tax Services Office requesting an advance income tax ruling on behalf of XXXXXXXXXX has been forwarded to us for reply.

The major issue of the advance income tax ruling requested pertains to whether the proposed sale of standing timber by XXXXXXXXXX, can be viewed as being of an income nature or of a capital nature. The standing timber is on approximately XXXXXXXXXX The determination as to whether a transaction should be viewed as being of an income nature or of a capital nature is one of the circumstances where we normally refuse to rule. In this respect, please refer to paragraph 15 of Information Circular 70-6R3, Advance Income Tax Rulings. However, we are prepared to offer the following comments which may be of assistance to you.

Where timber harvesting is not a taxpayer’s business, the determination of whether the sale of standing timber is on income or capital account is a question of fact that can only be resolved after a thorough review of all the circumstances involved. Usually, no one single factor determines the characterisation and a combination of factors may tip the scales one way or the other.

The following factors, while not an exhaustive list, would likely be important in determining whether the sale of standing timber is on account of income or capital:

• The background of the person who is selling the standing timber.
• A review of the history of the property to establish whether the current sale is an isolated one.
• The course of conduct of the seller to determine the intention and reasons for the sale of the standing timber.
• The length of time the property has been owned before the sale of the standing timber.
• The physical characteristics of the property on which the standing timber is being sold.
• Previous sales of standing timber.
• Whether the payment received in respect of the timber is a fixed price for a fixed quantity of timber to be taken within a fixed period of time or an amount related to the use of or production from the woodlot on a continuing basis.

In order for the sale of standing timber to be eligible for the capital gains exemption in subsection 110.6(2) of the Act for qualified farm property, the sale would have to be viewed as a disposition of real property used in carrying on a farming business is Canada. In our view, the capital gains exemption will not apply to the sale of the timber but may only be claimed in respect of the disposition of the land.

We hope that our comments are helpful.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

cc Sudbury Tax Services Office

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