I an trying to find information on the CRA site for the treatment of timber limits when the timber has been exhausted and the value of the land is depleted.
I am not sure where to record the information on a T2? I see information on a “Timber Resource” which is under the CCA class #15 but the “Timber Limit” is handled differently.
If I try and add it to the income statement under GIFI code #8650 "Amortization of natural resource assets, the expense is added back on at line 105. The CRA allow for the depletion as an expense but I cannot determine the correct entries.
After further reading of interpretations and other tax resource sites it looks as though the timber limit should be treated as inventory and once depleted the residual value of the land is then treated as an asset and subject to Capital Gains.
SUBJECT: INCOME TAX ACT Timber Resource Property and Timber Limits
REFERENCE: The definition of “timber resource property” in subsection 13(21) of the Income Tax Act (the “Act”); and subsection 1101(3), paragraph 1100(1)( e ), Class 33 of Schedule II and Schedule VI of the Income Tax Regulations (the “Regulations”) (also the definition of “undepreciated capital cost” in subsection 13(21), paragraph 20(1)(a) and paragraph 39(1)( a ) of the Act; and subsection 1102(14) and subparagraph 1100(1)(a)(xxiv) of the Regulations)
Latest Revisions – Reference section and ¶s 2, 7 and 8
Application
This bulletin is a consolidation of the following:
Interpretation Bulletin IT-481 dated November 27, 1981; and
subsequent amendments thereto.
For further particulars, see the “ Bulletin Revisions ” section near the end of this bulletin.
Unless otherwise noted, all statutory references throughout the bulletin are to the Act.
Summary
This bulletin discusses the differences between the tax treatment of “timber resource properties” (as defined in subsection 13(21)) and “timber limits” (referred to in paragraph 1100(1)( e ) of the Regulations). The cost of acquisition of the former is included in Class 33 (which has a 15% rate of capital cost allowance (“CCA”)), and a disposition of such property generally results in an income inclusion rather than a capital gain. A deduction in respect of the capital cost of of a timber limit or a right to cut timber from a limit other than a timber resource property is calculated in accordance with Schedule VI of the Regulations and the disposition of such property may result in a capital gain.