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Supreme Court of Canada ruling in Daishowa-Marubeni: Tax treatment of reforestation obligations on sale of forestry assets (May 23, 2013)

The Daishowa-Marubeni International Ltd. v. The Queen (DMI) decision held that no amount was includible in DMI’s sale proceeds for forest tenures (i.e. the right to harvest timber on land) as a result of two purchasers having assumed DMI’s future obligations to reforest the land on which it had previously harvested trees. This is an important and positive decision for the forestry, mining, pipeline and petroleum industries, where it is common that a purchaser of forestry or oil producing assets must assume reforestation or reclamation obligations. The SCC held that the future costs were ‘embedded’ in the transferred assets, were not distinct existing liabilities and thus were not includible in the sale proceeds.

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