2 April 1997 External T.I. 9640535 - TIMBER LICENSE - CHANGE OF CONTROL

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:

Appropriate tax treatment of a payment required to be made under the BC Forest Act to keep a timber license after there has been a change in control of a corporation.

Position:

Question of fact.

Reasons:

Could be a non-deductible capital outlay, an eligible capital expenditure or the acquisition of depreciable proeprty.

964053
XXXXXXXXXX A. Seidel
(613) 957-8974
Attention: XXXXXXXXXX

April 2, 1997

Dear Sirs:

Re: B.C. Forest Act and Change of Control

This is in reply to your telephone enquiry of December 6, 1996 in which you requested our views with respect to the tax treatment of the amount payable by a taxpayer pursuant to subsection 50.2(5) of the Forest Amendment Act (1994) of British Columbia (referred to herein as the "BC Forest Act").

Paragraph 50(1)(b) of the BC Forest Act provides that:

"The minister's prior written consent must be obtained for

(b)the change, or the acquisition or disposal, in one or a series of transactions, of control of a corporation that is the holder of an agreement or of another corporation that, directly or indirectly, controls that corporation, ..."

Subsection 50.2(5) of the BC Forest Act provides that:

"If the minister gives consent under section 50 or is deemed to have given consent under section 50.1(2) in respect of a timber licence, the holder of the license must

(a)submit to the minister an independent current appraisal, that is satisfactory to the minister and is prepared by a professional forester, of the value of the timber standing within the area of the timber license, and

(b)pay to the Crown, by a date specified by the minister, an amount that is 5% of the greater of the following amounts:

(i)the value that the holder of the license declared the license to have when the holder made the application for consent under section 50;

(ii)the independent current appraisal of the value of the timber."

The exceptions to subsection 50.2(5) of the BC Forest Act are found in subsection 50.2(6) of the BC Forest Act.

Finally, subsection 50.2(8) of the BC Forest Act provides that:

"If a person fails to comply with an obligation to pay by the date specified by the minister under subsection (5)(b), (sic), the minister may, without notice and despite section 61, cancel the agreement in respect of which the failure occurred."

You have requested our views as to the appropriate tax treatment of the amount that would be payable by a taxpayer pursuant to paragraph 50.2(5)(b) of the BC Forest Act.

The situation described in your letter appears to relate to specific taxpayers and actual fact situations. To the extent that you require assistance in determining the current tax status of the taxpayers involved, you should contact your local Taxation Services Office. To the extent that you require confirmation of the tax consequences of proposed transactions, we bring to your attention Information Circular 70-6R3 ("IC 70-6R3") dated December 30, 1996 issued by Revenue Canada. Confirmation with respect to proposed transactions involving specific taxpayers should be the subject of a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with IC 70-6R3. Nevertheless, we can provide you with the following general comments.

Where the payment required to be made under subsection 50.2(5) of the BC Forest Act is in respect of maintaining or preserving a person's rights as a holder of a timber license (non-payment would result in the loss of the license pursuant to subsection 50.2(8) of the BC Forest Act), is in respect of a capital property and provides an enduring benefit over the remaining life of the license, we would consider such a payment to be on account of capital for tax purposes. Such a capital payment could be a non-deductible capital outlay, an eligible capital expenditure, within the meaning thereof in subsection 14(5) of the Income Tax Act (the "Act") or in respect of the acquisition of depreciable property, within the meaning thereof in subsection 13(21) of the Act, depending on the circumstances.

As we have not been provided with all of the circumstances and details relevant to a particular payment, we regret that we are unable to provide more definitive comments.

These comments are provided in accordance with the guidelines set out in paragraph 22 of IC 70-6R3 and are therefore not binding on Revenue Canada.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch