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:
For purposes of the Income Tax Act (Canada):
(A) Whether a Canadian corporation could claim a depletion allowance in respect of its timber property located in the United States?
(B) How would such allowance be calculated?
Position TAKEN:
(A) No.
(B) N/A
Reasons FOR POSITION TAKEN:
(A) Notwithstanding the reference to timber limits in section 65 of the Act, there are no provisions in the Act and the Regulations in allowing for resource allowance and depletion allowance with respect of timber limit, timber property or timber production.
(B) Even though there are no provisions for resource allowance and depletion allowance in respect of a timber property, capital cost allowance may be claimed if all the requirements under paragraph 1100(1)(e) and Schedule VI of the Regulations and paragraph 20(1)(a) of the Act are met. We note that there is no requirement under these provisions that a timber limit must be located in Canada.
5-951356
XXXXXXXXXX Peter Lee
957-8977
Attention: XXXXXXXXXX
August 4, 1995
Dear Sirs:
Re: Depletion Allowance
Timber Property Located in the United States
This is in reply to your letter of May 9, 1995 wherein you requested our comments on whether a Canadian corporation could claim a depletion allowance in respect of its timber property located in the United States and on how would such allowance be calculated, for purposes of the Income Tax Act (Canada) (the "Act").
1.A timber property located in the United States generally does not qualify as "timber resource property" within the meaning of the expression in subsection 13(21) of the Act because the requirement under this provision that the limit or area in respect of such property must be located in Canada, has not been met.
2.Notwithstanding the reference to timber limits in section 65 of the Act, there is no provision for resource allowance and depletion allowance in respect of such limits under the prescribed section 1200 of the Income Tax Regulations (Canada) (the "Regulations"). However, a capital cost allowance in respect of a timber limit or a right to cut timber from a limit, may be claimed if all the requirements under paragraph 1100(1)(e) and Schedule VI of the Regulations and paragraph 20(1)(a) of the Act are met. We note that there is no requirement under these provisions that such a timber limit or such a limit must be located in Canada.
3.Whether a timber property is a timber limit or a right to cut timber from a limit for purposes of paragraph 1100(1)(e) and Schedule VI of the Regulations and paragraph 20(1)(a) of the Act, is always a question of fact to be determined. The expression "timber limit" is not defined in the Act nor in the Regulations. Paragraphs 5 and 8 of Interpretation Bulletin IT-481 state the Department's position in respect of timber limit:
A timber limit or cutting right may be acquired with or without title to the land on which the timber stands... If a taxpayer acquires land on which there is standing timber (for example, freehold timberlands), such property is a timber limit.
We hope that our above-noted comments are helpful to you. These comments represent our general views on the subject matter. As indicated in paragraph 21 of Information Circular 70-6R2, these comments do not constitute an advance income tax ruling and accordingly are not binding on the Department.
Yours truly,
for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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