A major issue for woodlot owners concerns the intergenerational transfer of woodland. When inheriting woodland property, it has often been necessary for the landowner to harvest the timber in order to pay the inheritance tax (capital gains). This can result in the landowner being forced to make harvesting decisions that are not based on sound forest management.
Tax savings for woodlot owners in this situation are now possible since the December 2001 federal budget which recommended provisions in the Income Tax Act for the transfer of woodlots from one generation to another with the ability to defer the capital gains tax.
To qualify you need to be a "commercial farm woodlot owner" and operate the woodlot with a reasonable expectation of profit as determined by the Canada Custom and Revenue Agency (CCRA).
Reasonable Expectation of Profit
With regard to reasonable expectation of profit there is a two-step test: Is the taxpayer's activity undertaken in pursuit of profits? If so, is it a source of income from a business or property? The Supreme Court has ruled, As long as an activity is undertaken in pursuit of profit, it will meet the standards of commerciality. More small-scale woodlot owners will qualify as commercial farm woodlot owners as a result of this decision.
The CCRA considers various factors including:
- planning - is there an up-to-date woodland management plan; a financial plan; are records kept
- expertise - does the landowner have forestry expertise; are professionals consulted
- time - how much time does the landowner spend on the property
- size - is the woodlot large enough to qualify as commercial
- memberships - is the landowner a member of relevant organizations such as woodland owner organizations
The landowner should consult a qualified lawyer and/or accountant as to each individual situation.
- Tax Guides
- Interpretation Bulletins
List of Toll Free Telephone Numbers
Canadian Council of Forest Ministers
Private Woodlot Taxation Task Force
NSDNR Woodlot Management Home Study Program
- Online or Mail
Module 10B - Managing Woodlot Finances, Income
Tax & Estate Planning Guide