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Taxation Income Tax Assessment Tax treatment of assumed contingent liabilities Amount if any to be included in proceeds of disposition in respect of reforestation obligations assumed by purchasers of sawmill operations Whether the reforestation liabilities are to be included in the proceeds of disposition because the vendor is relieved of a liability, or whether they are integral and run with the forest tenures Whether it makes any difference that the parties agreed to a specific amount of the future reforestation liability.

The appellant operated pulp mills in Alberta and British Columbia. Two of its divisions carried on harvesting activities. Silviculture liabilities associated with its harvesting rights obliged the appellant to reforest lands. The appellant sold its harvesting divisions to purchasers who assumed the reforestation obligations. The silviculture liabilities were deducted from the gross sales prices. In its relevant income tax returns, the appellant classified the silviculture liabilities as long term liabilities that would not be expended within 12 months following specified dates and current liabilities that would be expended within 12 months following specified dates (October 31, 1999 and December 31, 1999). The Province of Alberta takes the position that, pursuant to the Forests Act, RSA 2000, c. F 22, and the Timber Management Regulations, Alta. Reg. 60 1973, an assignee of timber rights assumes the reforestation liability corresponding to the forest tenure and the assignor is no longer liable. In reporting its income for the 1999 and 2000 taxation years, the appellant did not include in its proceeds of disposition any amounts pertaining to the silviculture liabilities assumed by the purchasers. The Minister of Revenue reassessed the appellant in respect of both sales by including, in the calculation of proceeds of the dispositions of the timber resource properties, estimated silviculture liabilities of $11,000,000 in respect of 1999 and $2,966,301 in respect of 2000.