The appellant sold two forest tenures in Alberta, under which the purchasers assumed statutory reforestation obligations arising from past harvesting.
The Minister reassessed the appellant to include the estimated cost of those reforestation obligations in the vendor's proceeds of disposition under s. 13(21) of the Income Tax Act.
The Supreme Court of Canada unanimously allowed the appeal, holding that the reforestation obligations were not a distinct existing liability of the vendor but rather a future cost embedded in the forest tenure by virtue of Alberta's regulatory scheme, which depressed the tenure's value.
The Court rejected both the Minister's mortgage analogy and the appellant's contingent liability argument, finding the obligations properly excluded from proceeds of disposition regardless of whether they were contingent or absolute.
