10 December 1981 Income Tax Severed Letter

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.

Nov 23 1981

DATE: DEC 10 1981

TO -VICTORIA DISTRICT OFFICE

FROM- HEAD OFFICE Corporate Rulings Division W.P. Guglich (613) 996-1834

ATTENTION B.L.J. Young 
          Audit Review

RE: Paragraph 15.1(3) (f) Road to Timber Resource Property (TRP) ------------------------------------------

This is in reply to your memorandum of October 23, 1981 concerning the categorization for purposes of paragraph 15.1(3)(f) of.a logging road built on crown land to a TRP.

Your situation involves a Timber Sales Licence under the B.C. Forest Act. You have determined that the licence in question is a TRP as defined in paragraph 13(21)(d.l).

Although section 95 of the B.C. Forest Act deems such road or Crown land to be owned by the permit holder, the effect of the provisions of sections 96 and 97 of that Act is that for purposes of the Income Tax Act, the permit holder owns only certain priority rights regarding the use of the road. For purposes of the Income Tax Act the permit holder would not be considered to own the road.

These priority rights regarding the use of the road would in our view be considered depreciable property described in paragraph (n) of Class 10, or Class 15 of Schedule II. A TRP is a particular type of timber limit that is treated differently for taxation purposes, than ordinary timber limits.

The costs incurred to build the road can not be considered part of the cost of a TRP as such costs do not meet the definition in para- graph 13(21)(d.l). Furthermore, we do not agree with your comments that as part of obtaining the TRP the logging company has to put in the roads. Section 91 of the B.C. Forest Act provides that where a person who has a right to harvest timber but does not have access to the timber over an existing road on Crown or private land, a road permit may be granted to provide access to the timber. There- fore, these road costs are incurred to obtain access to the timber and not to obtain the timber licence or cutting permit.

A TRP in our view is actually a right, theoretically to cut timber from a succession of limits for an indefinite number of years. Consequently, all cost incurred to obtain a TRP should be capitalized. We see no provision in the Act which would allow these costs to be expensed. The definition of TRP's in paragraph 13(21)(d.1) was written with B.C. in mind. In theory a TRP should not decline in value over the years and CCA should not be allowed. However, for policy reasons CCA at 15% through a Class 33 was allowed.

Costs which have been expensed in computing net income cannot for purposes of paragraph 15.1(3) (f) be capitalized and treated as depreciable property. The definition of depreciable property in paragraph 13(21)(b) of the Act applies for all purposes of the Act. Consequently if as a result of an administrative practice the taxpayer is permitted to expense certain outlays or expenditures in computing income then he would be precluded from treating it as a depreciable property for other purposes of the Act.

In conclusion, it is our view that for purposes of paragraph 15.1(3)(f) of the Act, costs incurred to obtain a TRP would be considered a Class 33 depreciable property while the costs incurred to obtain access to the timber would be considered Class 10 or Class 15 depreciable property.

Chief Services, Public Utilities and Exempt Corporations Section Corporate Rulings Division