2017-0732151E5 Timber Resource Property

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: Does a coniferous timber quota originally acquired in 1967 fall within the definition of timber resource property?

Position: Yes, based on the facts, in Alberta coniferous timber quota are typically issued for a 20 year tenure and under regular circumstances renewed thereafter. Hence, the original quota was likely renewed in 1987 and subsequently in 2004 combined with additional quota to form a new and enlarged timber quota.

Reasons: Application of the law.

Author: Christov, Boriana

Section: ss. 13(21); repealed s.14; 20(1)(a); 39(1)(a); 1100(1)(e); Class 33 of Schedule II, Schedule VI of the Regulations

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                                                                                                                      Boriana Christov
February 6, 2018


Re:  Tax Treatment of Proceeds of Disposition of a Coniferous Timber Quota

This is in response to your letter of November 6, 2017 requesting a technical interpretation concerning the tax treatment of proceeds of disposition received by a taxpayer on a disposition of a coniferous timber quota. You have described the following situation:

1.    A coniferous timber quota was received from the Alberta Government in 1967 (the “Original Quota”). Pursuant to the Original Quota, the holder was entitled to harvest coniferous timber in periodic cuts adjusted to the annual allowable cut of coniferous timber and subject to certain terms and conditions. Further, the holder was obliged to adhere to the spatial harvest sequence determined in the Original Quota.

2.    According to documents from the Alberta Environment and Sustainable Resource Development, coniferous timber quotas are generally issued for a 20 year tenure with the right to extend or renew under the ordinary circumstances. Therefore, it is reasonable to assume that the Original Quota was issued for a twenty year tenure having the right to extend or renew and that it was renewed in 1987.

3.    An additional coniferous timber quota was acquired sometime in 2004 (the “Additional Quota”). At that time, the Original Quota was incorporated into a larger total quota (the “New Quota”), which was comprised of the area and limits under the Original Quota and the Additional Quota. The New Quota was sold in September 2016.

4.    At all relevant times, in the ordinary course of events, it was reasonable to expect that the Original Quota, the Additional Quota and the New Quota, as applicable, would be renewed or extended, or that another right or licence could be acquired in substitution therefor.

Written confirmation of the income 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 as described in Information Circular 70-6R7 dated April 22, 2016 issued by the Canada Revenue Agency (“CRA”). A fee is charged for this service. Although we are unable to provide any comments with respect to a particular fact situation otherwise than in the form of an advance income tax ruling, the following general comments may be of assistance.

Unless otherwise indicated, all references herein are to the Income Tax Act (footnote 1) (the “Act”) and the Income Tax Act Regulations (the “Regulations”).


You would like to know the tax treatment of the proceeds of disposition of the New Quota under the provisions of the Act. In particular, you have asked whether the proceeds of disposition would be considered as proceeds of disposition of an eligible capital property.


A.    Potential Characterizations of the New Quota

For the purposes of the present inquiry, a key determination is whether the New Quota was:

o     an eligible capital property,
o     a timber limit, or
o     a timber resource property.

1.    Eligible Capital Property

“Eligible capital property” of a business may be broadly described as intangible property the cost of which does not qualify for capital cost allowance (“CCA”) and is not fully deductible as a current expense in the year of the acquisition of the property. Examples generally include: goodwill, customer lists, milk quota, marketing quota and farm quota, etc.

Since the sale of the New Quota occurred prior to 2017, former section 14 of the Act, rather than new Class 14.1, is the relevant provision to consider.

The term “eligible capital property” is based on expenditures that qualify as “eligible capital expenditures” within the meaning of that term in former subsection 14(5). That definition lists a number of exclusions (i.e., expenditures that do not qualify as eligible capital expenditures), including: (i) the cost of intangible property, or for civil law, incorporeal property, that is a depreciable property and (ii) the cost of property in respect of which any deduction (such as a deduction under paragraph 20(1)(a)) is permitted in computing the taxpayer’s income from the business.

As discussed in greater detail below, timber limits and timber resource properties are both properties in respect of which deductions under paragraph 20(1)(a) are permitted. As a result, if the New Quota is a timber limit or a timber resource property, it will not be an eligible capital property.

2.    Timber Limit

The term “timber limit” is not defined in the Act. Generally, a right to cut timber that does not meet the definition of a “timber resource property” will be a timber limit. A taxpayer may deduct an amount of CCA in respect of the capital cost of timber limits and rights to cut timber from a limit (that are not timber resource properties) in accordance with subsection 20(1)(a) of the Act and paragraph 1100(1)(e) of the Regulations. The amount that may be claimed is calculated in accordance with Schedule VI of the Regulations. Each timber limit is prescribed to be a separate class by virtue of subsection 1101(3) of the Regulations.

As discussed in greater detail below, timber resource properties are expressly excluded from capital gains treatment by virtue of subparagraph 39(1)(a)(iv). Since there is no similar exclusion for timber limits or cutting rights, the disposition of a timber limit or cutting right that is not a timber resource property may give rise to a capital gain where the proceeds of disposition exceed the capital cost, depending on all of the facts and circumstances, including whether the taxpayer holds the timber limit or cutting right on capital account or on income account.

3.    Timber Resource Property

“Timber resource property” is defined in subsection 13(21) as follows:

(a) a right or licence to cut or remove timber from a limit or area in Canada (in this definition referred to as an “original right”) if

(i) that original right was acquired by the taxpayer (other than in the manner referred to in paragraph (b)) after May 6, 1974, and

(ii) at the time of the acquisition of the original right

(A) the taxpayer may reasonably be regarded as having acquired, directly or indirectly, the right to extend or renew that original right or to acquire another such right or licence in substitution therefor, or

(B) in the ordinary course of events, the taxpayer may reasonably expect to be able to extend or renew that original right or to acquire another such right or licence in substitution therefor, or

(b) any right or licence owned by the taxpayer to cut or remove timber from a limit or area in Canada if that right or licence may reasonably be regarded

(i) as an extension or renewal of or as one of a series of extensions or renewals of an original right of the taxpayer, or

(ii) as having been acquired in substitution for or as one of a series of substitutions for an original right of the taxpayer or any renewal or extension thereof;

A timber resource property is included in Class 33 of Schedule II of the Regulations. When a taxpayer disposes of a timber resource property, the undepreciated capital cost (“UCC”) of the class is reduced by the full amount of the proceeds of disposition (rather than by the lesser of the capital cost of the property and the proceeds of disposition) by virtue of element G of the formula in the definition of “undepreciated capital cost” in subsection 13(21). As a result, the amount by which the proceeds of disposition exceed the capital cost to the taxpayer of a timber resource property, will not be a capital gain as would generally be the case with other depreciable properties. (This is confirmed by subparagraph 39(1)(a)(iv) which specifically excludes timber resource properties from the capital gains regime.) Instead, such excess will reduce the UCC of the class and, if the aggregate reductions to the class exceed the amounts added to the class, the excess will be included in income under subsection 13(1).

B.    The New Quota

Based on jurisprudence (footnote 2) and the facts and assumptions described above, the New Quota (whether it is viewed as a single property or a combination of two properties) would qualify as a timber resource property pursuant to the definition of that term in subsection 13(21).

On this basis, the New Quota would not be an eligible capital property and instead the tax consequences described above with respect to timber resource properties would apply with respect to the disposition of the New Quota.

We trust that these comments will be of assistance.

Yours truly,


Kimberley Wharram
Acting Manager
Resources Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs


Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  R.S.C. 1985, c. 1 (5th suppl.) as amended.
2  The Queen v. Kettle River Sawmills Ltd., 94 D.T.C. 6086 (F.C.A.), leave to appeal to the SCC refused, ITT Industries of Canada Ltd. v. The Queen, 2000 D.T.C. 6445 (F.C.A.), leave to appeal to the SCC refused and Fletcher Challenge Investments Inc. v. The Queen, 2000 D.T.C. 6437 (F.C.A.).

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© Her Majesty the Queen in Right of Canada, 2018

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