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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: tax treatment of a grazing lease
Position: Class 13 leasehold interest
Reasons: the right is in respect of property that is leased
A. Humenuk
XXXXXXXXXX 972652
Attention: XXXXXXXXXX
October 31, 1997
Dear Sirs:
Re: Grazing Leases
We are replying to your letter of September 22, 1997, concerning the tax treatment of grazing leases.
The lease appears to be an agreement entered into with the Government of Alberta to allow for the use of and grazing on Crown land. It is our opinion that such a lease would represent a leasehold interest for the purposes of Class 13 of Schedule II of the Income Tax Regulations.
As capital property, any capital gain realized on the disposition of the leasehold interest will be calculated based on the adjusted cost base of the grazing lease. As depreciable property, a recapture of capital cost allowance may occur upon the disposition of the grazing lease. However, a grazing lease would qualify for the replacement property rules in section 44 of the Income Tax Act (the "Act"), if a replacement property were to be acquired upon the disposition of the lease.
Since a lease gives the right to exclusive possession of the land, it would qualify as real property for the purposes of the definition of "qualified farm property" in subsection 110.6(1) of the Act. You should note, however, that a grazing permit would not so qualify, since a permit merely gives the user a contractual right to use a site as permitted, with no interest in the land itself.
We trust our comments will be of assistance to you.
Yours truly,
C. Chouinard
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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