Principal Issues: (1) Can a landowner use the $750,000 lifetime capital gains exemption for dispositions of qualified farm property to offset the capital gain realized from the disposition of a pipeline easement? (2) Where the pipeline easement is for a term of 5 or 10 years, does a subsequent pipeline easement qualify as a disposition of qualified farm property?
Position: (1) Yes. The granting of an easement or right of way by a landowner is considered to be a disposition of a part of the property in respect of which it is granted. Provided that the whole property to which the easement or right of way pertains meets the definition of "qualified farm property" under subsection 110.6(1), the landowner may be entitled to utilize the capital gains deduction under subsection 110.6(2) in respect of the easement or right of way. (2) Where a subsequent easement or right of way is granted following the expiration of the 5 or 10-year term of an earlier easement or right of way, it is a question of fact whether a subsequent payment to extend, renew or renegotiate the terms of a pipeline easement contract or right of way is on account of income or capital, and whether a disposition has occurred that would be eligible for the capital gains deduction for qualified farm property.
Reasons: Review of the legislation, interpretation bulletins and previous technical interpretations.