1999 Ruling 9900393 - REPLACEMENT PROPERTY

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 timber land being exchanged would qualify as former business property and replacement property for purposes of section 44 of the Act.

Position: Yes.

Reasons: The property being disposed of and the property being acquired are timber lands used in the same business of the taxpayer.

XXXXXXXXXX
XXXXXXXXXX 990039
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above taxpayer.

To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein is being considered by a tax services office or a taxation center in connection with any tax return already filed and none of the issues is under objection or appeal.

Our understanding of the relevant facts, proposed transactions and purpose of the proposed transactions is as follows:

Definitions

In this letter, the following terms have the meanings specified:

(a) Unless otherwise indicated, all references to statute are to the Income Tax Act (the "Act") or the Income Tax Regulations (the "Regulations");

(b) "Canadian-controlled private corporation" ("CCPC") has the meaning assigned by subsection 125(7) of the Act;

(c) "capital cost allowance" ("CCA") has the meaning assigned by section 1100 of the Regulations;

(d) "Company" is XXXXXXXXXX;

(e) "Company Property" is referred to as XXXXXXXXXX (see paragraph 5 below for details);

(f) XXXXXXXXXX;

(g) "XXXXXXXXXX Property" is referred to as the XXXXXXXXXX Land, the XXXXXXXXXX (see paragraph 12 below for details);

(h) "Land Exchange Plan" means the plan and/or map which sets out, describes and defines the location and parameters of the Company Property and the XXXXXXXXXX Property;

(i) "Primary Catchment Lands" are those areas where the natural flow of water enters the primary water source for the XXXXXXXXXX;

(j) "proceeds of disposition" has the meaning assigned by section 54 of the Act; and

(k) "the Province" is XXXXXXXXXX.

Facts

1. The Company is a CCPC incorporated in the Province on the XXXXXXXXXX under certificate of incorporation number XXXXXXXXXX.

2. The Company was incorporated to purchase and hold timber lands and to log and sell the timber existing or grown on such lands. The main business of the Company now consists of forest harvesting management and timber processing.

3. The Company has XXXXXXXXXX issued and outstanding common shares of which XXXXXXXXXX are owned by XXXXXXXXXX and XXXXXXXXXX are owned by XXXXXXXXXX.

4. The Company currently owns the following parcels of timber lands, all of which are operated and managed for their timber resources:

	Fair Market Value
Legal Description		Date Acquired			at Acquisition

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

5. The Company Property consists of XXXXXXXXXX as described in paragraph 4 above. The total area of the Company Property is approximately XXXXXXXXXX acres. The Company Property is currently managed forest lands within the meaning thereof in the Province's Assessment Act (the "Assessment Act").

6.

XXXXXXXXXX

7.

XXXXXXXXXX

8. The Company Property has been logged as a source of revenue for the Company over the majority of the years since their acquisition. The two exceptions to this occurred in XXXXXXXXXX when market conditions made it uneconomical to sell timber harvested from the Company Property.

9. The Company Property is located in a rural area, XXXXXXXXXX. Access to this area may be obtained via public road (XXXXXXXXXX) and through utilization of a road network developed by XXXXXXXXXX over which Road Use Agreements are in place. The Company Property is generally unserviced without any utilities. The Company Property contains tree cover of various species and age.

10. The Company Property has been accounted for as "capital property" for income tax purposes since its acquisition.

11. The XXXXXXXXXX currently owns, or by the time of the Exchange described in paragraph 16 below will own, the following parcels of timber land:

(a) XXXXXXXXXX

(b) XXXXXXXXXX

(i) XXXXXXXXXX
XXXXXXXXXX
(ii) XXXXXXXXXX

(c) XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

(d) XXXXXXXXXX

(e) XXXXXXXXXX

(f) XXXXXXXXXX

(i) XXXXXXXXXX
(ii) XXXXXXXXXX
(iii) XXXXXXXXXX
(iv) XXXXXXXXXX
(v) XXXXXXXXXX

12. The XXXXXXXXXX Property consists of:

(a) (a), (c), (d) and (e) of paragraph 11 above (the "XXXXXXXXXX Land");

(b) all of the land described in (f) of paragraph 11 above except for XXXXXXXXXX and

(c) all of the land described in (b) of paragraph 11 above except for XXXXXXXXXX.

These terms have the same meaning as in the Agreement described in paragraph 16 below.

13. The XXXXXXXXXX Property consists of approximately XXXXXXXXXX acres and lies entirely outside of the primary catchment area of the XXXXXXXXXX.

14. The location and topography of the Company Property and the XXXXXXXXXX Property is similar. The Company Property and the XXXXXXXXXX Property both contain similar types of timber. The XXXXXXXXXX Property currently contains more harvestable timber than the Company Property. The highest and best use of both of the Company Property and the XXXXXXXXXX Property, given current zoning, etc., is the logging of timber.

15. Both the Company Property and the XXXXXXXXXX Property are freehold interests.

Proposed Transactions

16. An agreement (the "Agreement"), dated XXXXXXXXXX, has been reached between the Company, the XXXXXXXXXX and the Province. Under the Agreement, the Company will exchange with the XXXXXXXXXX the Company Property for the XXXXXXXXXX Property (the "Exchange"). The Exchange is to complete (the "Completion Date") on or before XXXXXXXXXX.

17.

XXXXXXXXXX

18. Following the Exchange, the Company will operate the XXXXXXXXXX Property as part of its business in the same manner as it currently operates the Company Property. The XXXXXXXXXX Property will not be used by the Company for any purpose other than for use in the same forestry business that the Company used the Company Property. The XXXXXXXXXX Property will be operated under a forest management plan that is substantially similar to the existing forest management plan for the Company Property.

Purpose of the Proposed Transactions

19. The XXXXXXXXXX is pursuing the ownership of all Primary Catchment Lands so that it can ensure control over access and land use activities on these lands for the purpose of protecting water quality and ensuring supply. The XXXXXXXXXX will trade Non-Catchment Lands and non-primary Catchment Land that it owns for Company Land which lies within the Primary Catchment Lands in order to secure and reduce the risk to the XXXXXXXXXX water supply.

XXXXXXXXXX

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:

A. The Company Property will constitute "former business property," as defined in subsection 248(1) of the Act, provided that it is not described in any of paragraphs (a) to (d) of that definition.

B. The XXXXXXXXXX Property will constitute "replacement property" as this term is used in subsection 44(5) of the Act.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996, and are binding provided that the proposed transactions are completed by XXXXXXXXXX.

Comments

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

Nothing in this ruling should be construed as implying that Revenue Canada has agreed to or reviewed:

(a) the determination of the fair market value, adjusted cost base or proceeds of disposition of any particular asset referred to herein; or

(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

Yours truly,

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

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