7 May 2001 External T.I. 2001-0078485 - PROCEEDS FROM EASEMENT ON LAND

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: The income tax treatment of a $XXXXXXXXXX payment received by a taxpayer from XXXXXXXXXX for an easement on the taxpayer's land for a XXXXXXXXXX

Position: Generally, the granting of an easement is considered a disposition of property, and a reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of is required to be allocated to the disposition pursuant to section 43 of the Income Tax Act. However, the CCRA will accept an amount equal to the proceeds from such a disposition as being the reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of provided that (a) the area or the portion of the property that was expropriated or in respect of which an easement was granted is not more than 20% of the area of the total property, and (b) the amount of the compensation received is not more than 20% of the amount of the adjusted cost base of the property.

Reasons: IT-264R

XXXXXXXXXX 	J. Gibbons, CGA
		2001-007848
May 7, 2001

Dear XXXXXXXXXX:

We are replying to your enquiry dated March 14, 2001, concerning the income tax treatment of a $XXXXXXXXXX payment received by a taxpayer from XXXXXXXXXX for an easement on the taxpayer's land for a XXXXXXXXXX.

Based on the limited information provided, it seems that the property on which the easement was granted may be both a principal residence and a business property. Accordingly, the proceeds from the easement would have to be allocated between the two properties on a reasonable basis. In this regard, we refer you to paragraph 19 of Interpretation Bulletin IT-120R5, "Principal Residence." (Copies of our interpretation bulletins can be obtained on our website at www.ccra-adrc.gc.ca or at your local tax services office.)

Generally, the granting of an easement is considered a disposition of property, and a reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of is required to be allocated to the disposition pursuant to section 43 of the Income Tax Act. Thus, for the business portion of your property, this could result in a taxable capital gain. However, as set out in Interpretation Bulletin IT-264R, "Part Dispositions," (a copy of which can be obtained on our website at www.ccra-adrc.gc.ca ), the Canada Customs and Revenue Agency will accept an amount equal to the proceeds from such a disposition as being the reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of provided that:

a. the area or the portion of the property that was expropriated or in respect of which an easement was granted is not more than 20% of the area of the total property, and

b. the amount of the compensation received is not more than 20% of the amount of the adjusted cost base of the property.

Accordingly, if the conditions above apply, the proceeds for the business portion of the easement will simply reduce the adjusted cost base of the business portion of your property.

While the above comments apply equally to any portion of your property that qualifies as a principal residence, there are normally no income tax consequences as a result of the disposition of a principal residence. (See Interpretation Bulletin IT-120R5, "Principal Residence.")

We trust that these comments will be of assistance.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate