Income TaxThe Federation has been working in conjunction with the Canadian Federation of Woodlot Owners since 1988 on getting income tax regulations changed with respect to intergenerational transfers. See below the text from the new regulation as it appeared in the Canada Gazette or view the website here.
Also see the Interpretation Bulletin (PDF; 212KB) to see how Woodlots are treated with respect to Income Tax.
Another document relating to Income Tax can be viewed here (PDF; 84KB).
Vol. 141, No. 5 -- March 7, 2007
SOR/2007-35 February 22, 2007
INCOME TAX ACT
Regulations Amending the Income Tax Regulations (Prescribed Forest Management Plans for Woodlots)
P.C. 2007-205 February 22, 2007
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), hereby makes the annexed Regulations Amending the Income Tax Regulations (Prescribed Forest Management Plans for Woodlots).
REGULATIONS AMENDING THE INCOME TAX REGULATIONS (PRESCRIBED FOREST MANAGEMENT PLANS FOR WOODLOTS)
1. The Income Tax Regulations (see footnote 1) are amended by adding the following after Part LXXIII:
PRESCRIBED FOREST MANAGEMENT PLANS FOR WOODLOTS
7400. (1) For the purposes of subsections 70(9), (9.3) and (10) and 73(3) of the Act, a prescribed forest management plan in respect of a woodlot of a taxpayer is a written plan for the management and development of the woodlot that
(a) describes the composition of the woodlot, provides for the attention necessary for the growth, health and quality of the trees on the woodlot and is approved in accordance with the requirements of a provincial program established for the sustainable management and conservation of forests; or
(b) has been certified in writing by a recognized forestry professional to be a plan that describes the composition of the woodlot, provides for the attention necessary for the growth, health and quality of the trees on the woodlot and includes
(i) a description of, or a map indicating, the location of the woodlot,
(ii) a description of the characteristics of the woodlot, including a map of the woodlot site that shows those characteristics,
(iii) a description of the development of the woodlot, including the activities carried out on the woodlot, since the taxpayer acquired it,
(iv) information acceptable to the recognized forestry professional estimating
(A) the ages and heights of the trees on the woodlot, and their species,
(B) the quantity of wood on the woodlot,
(C) the quality and composition of the soil underlying the woodlot, and
(D) the quantity of wood that the woodlot could yield as a result of the implementation of the plan,
(v) a description of, and the timing for, the activities proposed to be carried out on the woodlot under the plan, including any of those activities that deal with
(B) renewal and regeneration,
(C) the application of silviculture techniques, and
(D) responsible stewardship and the protection of the environment, and
(vi) a description of the objectives and strategies for the management and development of the woodlot over a period of at least five years.
(2) A recognized forestry professional referred to in subsection (1) is a forestry professional who has a degree, diploma or certificate recognized by the Canadian Forestry Accreditation Board, the Canadian Institute of Forestry or the Canadian Council of Technicians and Technologists.
(3) A recognized forestry professional referred to in subsection (1) is not required to express an opinion as to the completeness or correctness of a description of past activities referred to in subparagraph (1)(b)(iii) or of information referred to in subparagraph (1)(b)(iv) if the information was not prepared by that recognized forestry professional.
2. Section 1 applies in respect of dispositions of property after December 10, 2001, except that for dispositions of property before 2008, section 7400 of the Regulations, as enacted by section 1, is to be read as follows:
7400. For the purposes of subsections 70(9), (9.3) and (10) and 73(3) of the Act, a prescribed forest management plan in respect of a woodlot is a written plan for the management and development of the woodlot that provides for the necessary attention to growth, health, quality and composition of the woodlot.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Generally, a taxpayer may make an intergenerational transfer of farm property in Canada on an income tax-deferred rollover basis, only if the property was principally used in a farming business in which the taxpayer or a family member was actively engaged on a regular and continuous basis. Similar rules apply to intergenerational transfers of shares of family farm corporations and interests in family farm partnerships. Although the operation of a commercial woodlot may constitute a farming business, such operation may not, in certain circumstances, require regular and continuous activity. Therefore, before the 2001 budget, intergenerational rollovers were generally not available for commercial woodlots with the result that many commercial woodlot owners were subject to income tax on the intergenerational transfers of their commercial woodlots.
The 2001 budget proposed to extend the intergenerational rollover provisions to commercial woodlots where the owner of the woodlot is engaged in the management of the woodlot to the extent required by a prescribed forest management plan. The Income Tax Act (the "Act") has been amended to include this extension. In particular, the Budget Implementation Act, 2001 (Bill C-49) assented to on March 27, 2002 implemented legislative amendments to the Act relating to the tax-deferred intergenerational rollovers of commercial woodlots.
These amendments to the Income Tax Regulations (the "Regulations") set out the criteria of a prescribed forest management plan. In order to ensure that sufficient time is available for taxpayers to become familiar with the requirements of the prescribed forest management plan, these amendments apply to intergenerational transfers of woodlots that occur after 2007. For intergenerational transfers that occur after December 10, 2001 and before 2008, the prescribed forest management plan is, as was set out in the 2001 budget, a written plan that provides for the necessary attention to the growth, health, quality and composition of the woodlot.
These proposals are discussed in Annex 7, at page 221, of the Budget Plan of 2001. In addition, the Explanatory Notes Relating to the Air Travellers Security Charge and to Income Tax released for public consultation by Department of Finance on February 5, 2002 provide more details with respect to these amendments (Finance news release 2002-013 titled "Legislation introduced for 2001 Budget Initiatives").
These amendments are necessary to fully implement the 2001 budget proposal promoting sustainable woodlot management. No other alternatives were considered.
Benefits and Costs
These Regulations support amendments introduced in the 2001 budget and do not give rise to any independent benefits or costs.
The criteria for the prescribed forest management plan were developed in consultation with officials from the provinces and territories, the Canada Revenue Agency and various industry associations. In January 2004, a draft of the proposed criteria for a prescribed forest management plan was also made available to the responsible provincial officials as well as various industry associations across Canada for comment. Various technical comments were received; however, no substantive changes were made to the original proposals.
These amendments were pre-published in the Canada Gazette, Part I, on September 30, 2006. No comments were received during the 30-day consultation period. No changes were made to these amendments after their pre-publication.
Strategic Environmental Assessments
These Regulations, which fully implement the 2001 budget proposals that allow for the intergenerational rollovers of commercial woodlots, will help to ensure that a woodlot is not cut prematurely to pay the tax liabilities arising on the intergenerational transfers of the woodlot. To the extent that these amendments may help preserve forests until such time as they mature, these amendments are expected to have a positive impact on the environment. However, only a few taxpayers are expected to benefit from these amendments, therefore, they are not expected to have a significant environmental impact.
Compliance and Enforcement
The Act provides the necessary compliance mechanisms. These mechanisms allow the Minister of National Revenue to assess and reassess taxes payable, conduct audits and seize relevant records and documents.
Tax Legislation Division
Department of Finance
140 O'Connor Street
Telephone: (613) 996-0599
S.C. 2000, c. 12, s. 142 (Sch. 2, par. 1(z.34))
R.S., c. 1 (5th Supp.)
C.R.C., c. 945