Highway Sawmills Limited v. Minister of National Revenue, 66 DTC 5116,  CTC 150,  S.C.R. 384
Cartwright J. found that "the phrase 'timber limits' describes a parcel of land with merchantable timber standing upon it" (p. 5120), rather than being restricted to the timber thereon. Accordingly, a sale of land by the taxpayer following the removal of the timber thereon gave rise to recapture of depreciation rather than a tax-free capital gain.
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Standing timber is harvested and the land is subsequently disposed of at a gain. CRA stated:
Generally a right not categorized as a "timber resource property" will be a timber limit. As well, timber limits are created where the right to cut timber cannot reasonably be regarded as being a right that is renewable or replaceable. Timber limits usually include, among others, the right to cut which arises from the ownership of private land with timber. …
[T]he cost of land with standing timber characterized as a timber limit would be more appropriately included in Schedule VI rather than under Class 15 of Schedule IV… .[A]n amount equal to the lesser of the proceeds of disposition and the capital cost of the property will reduce the UCC of the property prior to the disposition and will result in a recapture of CCA where the reduction results in a negative amount of UCC. The recapture has to be fully included in income as per subsection 13(1)… .[A]ny excess of the proceeds of disposition of the land over the capital cost of the property will be treated as a capital gain pursuant to subsection 39(1)… .
4 August 1995 External T.I. 5-951356 -
There is no requirement in Regulation 1100(1)(e) and Schedule VI that a timber limit be located in Canada.