17 December 2008 External T.I. 2008-0296741E5 - PROCEEDS FROM EASEMENT ON LAND

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.

Principal Issues: The income tax treatment of a $XXXXXXXXXX payment received by a taxpayer from neighbouring municipality for the right to XXXXXXXXXX

Position: Generally, the granting of an easement is considered a disposition of property, and a reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of is required to be allocated to the disposition pursuant to section 43 of the Income Tax Act. However, the CCRA will accept an amount equal to the proceeds from such a disposition as being the reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of provided that (a) the area or the portion of the property that was expropriated or in respect of which an easement was granted is not more than 20% of the area of the total property, and (b) the amount of the compensation received is not more than 20% of the amount of the adjusted cost base of the property.

Reasons: IT-264R

								2008-029674
XXXXXXXXXX 							Charles Rafuse
								613-247-9237
December 17, 2008

Dear XXXXXXXXXX :

Re: Proceeds from granting an easement

This is in reply to your letter of October 20, 2008, concerning the tax implications under the Income Tax Act (the "Act") of a $XXXXXXXXXX payment you received from a neighbouring municipality for the right to XXXXXXXXXX .

You have indicated that you have received different views on how this payment should be taxed. Accordingly, you have requested our opinion.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

Generally, the granting of an easement is considered a disposition of property, and a reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of is required to be allocated to the disposition pursuant to section 43 of the Act. Thus this could result in a taxable capital gain. However, as set out in Interpretation Bulletin IT-264R, "Part Dispositions," (a copy of which can be obtained on our website at www.cra-arc.gc.ca ), the Canada Revenue Agency will accept an amount equal to the proceeds from such a disposition as being the reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of provided that:

a. the area or the portion of the property that was expropriated or in respect of which an easement was granted is not more than 20% of the area of the total property, and

b. the amount of the compensation received is not more than 20% of the amount of the adjusted cost base of the property.

Based on the above and the information contained in your letter, it is our opinion that, if the conditions above apply, the proceeds from granting the easement will simply reduce the adjusted cost base of your property.

We trust this information is helpful.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch