A coniferous timber quota was received from the Alberta Government in 1967 (the “Original Quota”) that entitled the holder to harvest coniferous timber in periodic cuts adjusted to the annual allowable cut of coniferous timber. An additional coniferous timber quota was acquired sometime in 2004 (the “Additional Quota”) and the two quotas later were assimilated to each other (the “New Quota”). 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. What is the tax treatment of the proceeds of disposition (prior to 2017)of the New Quota?
After noting that “if the New Quota is a timber limit or a timber resource property, it will not be an eligible capital property,” and that although “timber resource properties are expressly excluded from capital gains treatment by virtue of subparagraph 39(1)(a)(iv),” as “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,” and after reviewing the timber resource property definition and the absence of capital gains treatment therefor, CRA stated:
Based on jurisprudence ... 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.