Principal residence exemption on 37acres of non subdividable land

The property in question will be sold this year. Following is the ownership history. Can the principal residence exemption be claimed for the entire property under “required use & enjoyment”, or can it be a farm deeded to the children. If not where does the capital gain lie.

  1. A couple had owned a 37 acre parcel since 1968, prior to Valuation Day. Although it is in an area where the minimum lot size is 10 acres, it is landlocked - without legal access, so can’t be subdivided.
  2. It has been their principal residence since 1978.
  3. It was in the ALR till 1985.
  4. 31 acres used as a woodlot, 6.79 acres used for principal residence and accessory buildings.
  5. In 1992 , through the Small-Scale Forestry Program, they commenced operation of a wood lot, planting, fertilizing and pruning. They commenced selling logs, the income from which was declared as farming income on their Personal taxes in 1994, 1995, 1997, 2000, 2002 & 2003.
  6. In 2011 they created a bare trust putting three of their offspring on title - so Mum and Dad and three kids on title.
  7. Dad died in 2015, his chare moving to Mum.
  8. Mum died last year (2018).
  9. The remaining trust holders, the three offspring, are now going to sell the property - sale to take place in 2019.
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I hope this woodlot is not in BC. If it is, I hope you have had them reporting and paying the Provincial Logging Tax. The only exemption I am aware of for a woodlot is Christmas Tree farms. (because they are selling the entire tree, not logs) Not sure if other Provinces have this tax or not.

As long as you have proof of the minimum lot size being 10 acres, you can claim 10 acres as Personal Residence. The rest is subject to Capital Gains, just like any farm.