19 November 2025 External T.I. 2025-1082241E5 - Logging Tax Credit

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: Whether a company that is solely engaged in the hauling of cut timber is eligible for a logging tax credit under subsection 127(1) of the Income Tax Act.

Position: No.

Reasons: The law.

XXXXXXXXXX								2025-108224
									Marie-Audrey Kirouac

November 19, 2025

Dear XXXXXXXXXX:

Re: Logging Tax Credit

We are writing in response to your email dated October 23, 2025, in which you inquired about the logging tax credit under subsection 127(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “Act”), in circumstances involving a company engaged solely in the business of hauling timber in British Columbia.

More precisely, you suggest that this company would not be eligible for the logging tax credit under subsection 127(1) of the Act, and that this would impact the computation of the logging tax payable under section 2 of the British Columbia Logging Tax Act, [RSBC 1996] c. 277 (the “LTA”), which is notably based on the logging tax credit.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12 “Advance Income Tax Rulings and Technical Interpretations”. However, we can provide the following general comments.

Facts

The following outlines the hypothetical facts that will form the basis for our analysis and comments:

1. Company D is incorporated under the laws of British Columbia and is solely engaged in the business of hauling timber in that province. For greater precision, Company D does not sell either cut timber or acquired timber.

2. Company D operates under a contractual agreement with Company L, a logging company, to haul timber from the field to the sawmill.

3. More specifically, Company L has a contract to cut and sell timber to a sawmill. Company L transfers possession of the timber to Company D at the landing on the cut block. Company D transports the timber from the cut block to the sawmill, and is compensated based on the mileage traveled to transport a volume of logs.

4. At all times, the timber being transported is owned by Company L. Company D has no ownership rights or legal title in respect of the timber it hauls.

The logging tax under the LTA

Pursuant to section 2 of the LTA, for each taxation year, a taxpayer must pay a logging tax equal to the lesser of:

(a) 10% of the taxpayer’s income derived from logging operations in British Columbia, or

(b) 150% of the credit that would have been allowable under section 127(1) of the Act […]

The expression “income derived from logging operations” in British Columbia is defined in section 1 of the LTA. A complete reproduction of this definition is provided in Appendix A.

The logging tax credit under the Act

Pursuant to subsection 127(1) of the Act, there may be deducted from the tax otherwise payable by a taxpayer for a taxation year an amount equal to the lesser of:

(a) 2/3 of any logging tax (footnote 1) paid by the taxpayer to the government of a province in respect of income for the year from logging operations in the province, and

(b) 6 2/3% of the taxpayer's income for the year from logging operations in the province referred to in paragraph (a) […]

For purposes of this discussion, we will focus on the amount determined under paragraph 127(1)(b).

Subsection 127(2) of the Act refers to the Regulations for the definition of the term “income for the year from logging operations in the province”, which is set out in subsection 700(1) of the Regulations. This definition is similar to the definition of “income derived from logging operations” in section 1 of the LTA. A complete reproduction of subsection 700(1) of the Regulations is provided in Appendix B.

Summarily, the taxpayer must have undertaken one of the following operations for any resulting amount to be included in the aggregate amount of “income for the year from logging operations in the province” under the Act:

• Cutting standing timber or acquiring cut logs from standing timber, and selling them.
• Selling standing timber or the right to cut standing timber.
• Cutting standing timber or acquiring logs cut from standing timber, and exporting them.
• Cutting standing timber or acquiring logs cut from standing timber, and processing them.

Based on the limited facts provided, Company D is not engaged in any of these activities; it solely hauls cut timber. Therefore, the amount determined under paragraph 127(1)(b) of the Act for Company D would be nil.

Conclusion

Company D has no “income for the year from logging operations in the province” as that term is defined in subsection 700(1) of the Regulations. The amount determined under paragraph 127(1)(b) would therefore be nil for Company D in the circumstances.

As a result, Company D would not be entitled to deduct any amount under subsection 127(1), since the lesser of the amounts referenced in paragraphs (a) and (b) would necessarily be nil.

We trust that these comments will be of assistance.

Yours truly,

Kimberley Wharram
Manager
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch

FOOTNOTES

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

1. Subsection 127(2) defines “logging tax” as a tax imposed by the legislature of a province that is declared by regulation to be a tax of general application on income from logging operations. Subsection 700(3) of the Income Tax Regulations, C.R.C. 1977, c. 945 (the “Regulations”) specifies that the tax imposed under the LTA is such a tax.

Appendix A

Section 1 of the LTA - “Income derived from logging operations”

Pursuant to section 1 of the LTA, "income derived from logging operations" means the aggregate of the amounts under the following paragraphs:

(a) if

(i) standing timber is cut in British Columbia by the taxpayer or logs cut from standing timber in British Columbia are acquired by the taxpayer, and

(ii) the logs obtained are sold by the taxpayer in British Columbia,

the taxpayer's income for the year from the sale;

(b) if standing timber in British Columbia or the right to cut standing timber in British Columbia is sold by the taxpayer, the taxpayer's income for the year from the sale;

(c) if

(i) standing timber is cut or caused to be cut in British Columbia by the taxpayer or logs cut from standing timber in British Columbia are acquired by the taxpayer, and

(ii) the logs obtained are exported from British Columbia,

the amount computed by deducting from the value, as determined by the minister, of the logs exported in the taxation year, the aggregate of the costs of acquiring, cutting, transporting and selling the logs;

(d) if

(i) standing timber is cut or caused to be cut in British Columbia by the taxpayer or logs cut from standing timber in British Columbia have been acquired by the taxpayer, and

(ii) if the taxpayer operates or causes to be operated a sawmill, pulp or paper plant, or other place for processing logs in Canada,

the income of the taxpayer for the year from all sources minus the aggregate of

(iii) the taxpayer's income from sources other than logging operations,

(iv) any amount included in the aggregate as determined under paragraphs (a), (b) and (c), and

(v) as applicable,

(A) an amount equal to 8% of the original cost to the taxpayer of properties described in Schedule II of the Regulations of the Income Tax Act (Canada) used by the taxpayer in the taxation year in the producing of primary and secondary forest products,

(B) if the amount determined under clause (A) is greater than 65% of the income remaining after making the deductions under subparagraphs (iii) and (iv), 65% of the income remaining,

(C) if the amount determined under clause (A) is less than 35% of the income remaining, 35% of the income remaining;

(e) if paragraph (d) applies and the taxpayer cuts standing timber outside British Columbia or acquires logs cut from standing timber outside British Columbia there may be deducted from the income determined under paragraph (d) the portion of the amount that bears the same ratio that the quantity of standing timber cut outside British Columbia and logs cut from standing timber outside British Columbia acquired by the taxpayer in the taxation year bears to the total quantity of standing timber cut and logs acquired by the taxpayer in the taxation year;

Appendix B

Subsection 700(1) of the Regulations - “Income for the year from logging operations in the province”

According to subsection 700(1) of the Regulations:

(1) Except as provided in subsection 700(2), for the purposes of paragraph 127(2)(a) [127(2)“income for the year from logging operations in the province”] of the Act “income for the year from logging operations in the province” means the aggregate of

(a) where standing timber is cut in the province by the taxpayer or logs cut from standing timber in the province are acquired by the taxpayer and the logs so obtained are sold by the taxpayer in the province before or on delivery to a sawmill, pulp or paper plant or other place for processing logs, the taxpayer's income for the year from the sale, other than any portion thereof that was included in computing the taxpayer's income from logging operations in the province for a previous year;

(b) where standing timber in the province or the right to cut standing timber in the province is sold by the taxpayer, the taxpayer's income for the year from the sale, other than any portion thereof that was included in computing the taxpayer's income from logging operations in the province for a previous year;

(c) where standing timber is cut in the province by the taxpayer or logs cut from standing timber in the province are acquired by the taxpayer, if the logs so obtained are

(i) exported from the province and are sold by him prior to or on delivery to a sawmill, pulp or paper plant or other place for processing logs, or

(ii) exported from Canada,

the amount computed by deducting from the value, as determined by the province, of the logs so exported in the year, the aggregate of the costs of acquiring, cutting, transporting and selling the logs; and

(d) where standing timber is cut in the province by the taxpayer or logs cut from standing timber in the province are acquired by the taxpayer, if the logs are processed by the taxpayer or by a person on his behalf in a sawmill, pulp or paper plant or other place for processing logs in Canada, the income of the taxpayer for the year from all sources minus the aggregate of

(i) his income from sources other than logging operations carried on in Canada and other than the processing in Canada by him or on his behalf and sale by him of logs, timber and products produced therefrom,

(ii) each amount included in the aggregate determined under this subsection by virtue of paragraph 700(1) (a), (b) or (c), and

(iii) an amount equal to eight per cent of the original cost to him of properties described in Schedule II used by him in the year in the processing of logs or products derived therefrom or, if the amount so determined is greater than 65 per cent of the income remaining after making the deductions under subparagraphs 700(1)(d) (i) and (ii), 65 per cent of the income so remaining or, if the amount so determined is less than 35 per cent of the income so remaining, 35 per cent of the income so remaining.