30 November 1999 Internal T.I. 9925837 - TIMBER SALE, WOODLOT, ACB

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.

			November 30, 1999

Ottawa Tax Services Office	Resource Industries Section
	Client Services Division	Denise Dalphy
Rick Allen	957-9231

			992583

Woodlot

This is in reply to your facsimile transmission dated September 27, 1999 with regard to an enquiry that you received about the income tax treatment of a sale of timber.

Our understanding of the situation is as follows:

1. In XXXXXXXXXX, the taxpayers paid approximately $XXXXXXXXXX to buy a XXXXXXXXXX acre in Canada as a vacation property.

2. There are no permanent buildings on the property.

3. A logging company approached the taxpayers to log XXXXXXXXXX% of the trees on approximately XXXXXXXXXX acres of property. The amount received by the taxpayers was approximately $XXXXXXXXXX.

Discussion

Based on the limited information above, we would expect that the one-time logging of the taxpayers' vacation property for consideration of $XXXXXXXXXX would result in a capital, not an income, gain and would be a disposition of personal-use property by the taxpayers. In this regard, you may refer to the current versions of IT-332, Personal-Use Property, and IT-456, Capital Property - Some Adjustments to Cost Base.

With respect to allocating an amount as the adjusted cost base of the trees severed and sold, the rule for part dispositions of capital property in section 43(1) of the Income Tax Act would apply. After consulting with Industry Specialist Services, we concluded that what would generally be considered a "reasonable" ACB attributable to the trees disposed of for the purposes of subsection 43(1) of the Act would be the proportion of the ACB of the entire property before the disposition of the trees (after subtracting the residual value of the land) that the volume of timber sold is of the volume of timber on the entire property (before the disposition of the trees).

This is similar to the way in which Schedule VI of the Act, which described the system of capital cost allowance for timber limits, operates. Of course, if the taxpayers can suggest another means of allocating ACB and you agree that it would be the most "reasonable" method, or if you are of the view that due to the particular fact situation another method would be more appropriate, you would be advised to so allocate. The main point is that the allocation should be reasonable.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, he can be provided with the LAD version or he may request a copy severed using Privacy Act criteria which does not remove the client's identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.

If we can be of any further assistance or if you wish to discuss this matter further, please contact the writer.

John Chan, Manager
Resource Industries Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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