15 January 1987 Income Tax Severed Letter AC71282 F - Grazing Leases and Permits

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.

We have  reviewed the provisions of the Public lands Act of Alberta dealing with grazing leases and the Grazing Permit Regulations to the Public Lands Act.  They would both appear to be agreements entered into between a user and the Government of Alberta which allow for the use of and grazing on Crown land.  It is our opinion, therefore, that both agreements represent leasehold interests for the purposes of Class 13 of Schedule II of the Income Tax Regulations, the grazing lease being a lease for a term of up to 20 years, the grazing permit being a lease for a term of 1 year.

In order for a leasehold interest to be considered a depreciable property it must have a capital cost.  The grazing lease or grazing permit must, therefore, have a capital cost in order to be eligible for the replacement property rules found in subsection 13(4) of the Income Tax Act (the "Act") and the intergenerational rollover rules found in subsection 70(9) of the Act.  As a capital property the grazing lease or permit would qualify for the replacement property rules in section 44 of the Act.

We are of the opinion that neither a grazing lease nor a grazing permit is qualified farm property for the purposes of subsection 110.6(1) of the Act.  While subsection 248(4) of the Act indicates that an interest in real property includes a leasehold interest in real property, the definition of qualified farm property in subsection 110.6(1) of the Act refers only to real property and as such is not extensive enough to include a leasehold interest such as a grazing lease or a grazing permit.

A disposition of either of these interests would entitle the vendor to claim the general capital gains deduction available pursuant to section 110.6 of the Act, but would not permit the vendor to claim the special capital gains deduction for qualified farm property provided for in section 110.6 of the Act.

Chief Leasing and Financing Section Financial Industries Division    Rulings DirectorateLegislative and Intergovernmental  Affairs Branch