How to treat income from a right of way for land

Received a one-time right of way payment (right of way and damages) for a gas line on a small peice of land.  Cannot find information on CRA site on how to treat - income, capital gain, reduce cost base?

Answer

1 person found this helpful

I would consult an accountant to be certain; as an accountant I would have many more questions to ask so providing a complete opinion would be difficult.  Also, there may be case law specific to this situation and I do not have access to case law history, so ... talk to an accountant that does.

That being said, if the taxpayer sold the land it would be a capital receipt.

If the taxpayer rented it, it would be income.

A one time payment of this nature, sounds like an 'Easement' was granted (perhaps forcibly) by the taxpayer and a one time payment was received.  This is not really a sale of land but a sale of a 'right' for the gas company to run a line; this affect the value of the land because it reduces the types of things that the landholder can do with it.  I personally consider the sale of an easement on land to be a Captial transaction.  

Now this is where it gets complicated....  The amount received would be the proceeds of disposition.  The ACB of the "easement' sold would probably be calculated as:
 - The value of the land without the Easement
 - Less:  The value of the land with the Easement

Which would require appraisals to be done.  Hence the complication.
Was this answer helpful? Yes No

No answers have been posted

More Actions

People come to ProFile for help and answers—we want to let them know that we're here to listen and share our knowledge. We do that with the style and format of our responses. Here are five guidelines:

  1. Keep it conversational. When answering questions, write like you speak. Imagine you're explaining something to a trusted friend, using simple, everyday language. Avoid jargon and technical terms when possible. When no other word will do, explain technical terms in plain English.
  2. Be clear and state the answer right up front. Ask yourself what specific information the person really needs and then provide it. Stick to the topic and avoid unnecessary details. Break information down into a numbered or bulleted list and highlight the most important details in bold.
  3. Be concise. Aim for no more than two short sentences in a paragraph, and try to keep paragraphs to two lines. A wall of text can look intimidating and many won't read it, so break it up. It's okay to link to other resources for more details, but avoid giving answers that contain little more than a link.
  4. Be a good listener. When people post very general questions, take a second to try to understand what they're really looking for. Then, provide a response that guides them to the best possible outcome.
  5. Be encouraging and positive. Look for ways to eliminate uncertainty by anticipating people's concerns. Make it apparent that we really like helping them achieve positive outcomes.

Select a file to attach: