REASONS FOR JUDGMENT Beaubier, J.T.C.C. [1] This appeal pursuant to the General Procedure was heard at Castlegar, British Columbia on June 10, 1998. The Appellant testified and called Paul Jeakins, R.P.F., a professional forester who qualified as an expert witness to give testimony as to whether timber sold on private land in British Columbia must be sold on a cubic metric basis. The appeal relates to the Appellant's 1994 taxation year when the Appellant reported a taxable capital gain of $59,319.74 and a corresponding capital gains deduction. A reassessment removed the taxable capital gain and included $161,075 into his income as the Appellant's share of the sale of timber. The Appellant filed a Notice of Appeal. There are four issues: Is the $161,075 income from a business or property pursuant to paragraph 12(1)(g) of the Income Tax Act? If not, is it income from a business or an adventure in the nature of trade? If not, is it a capital gain? If so, is the Appellant entitled to the capital gains deduction for qualified farm property under subsection 110.6(2) of the Income Tax Act? [2] The parties filed an Agreed Statement of Facts which reads: The parties hereto by their respective solicitors admit the following facts, provided that the admission is made for the purpose of this action only and may not be used against either party on any other occasion, and provided further that the parties may produce further and other evidence relevant to the issues and not inconsistent with this Agreement. The Appellant's father first acquired the 480 acres of land legally described as District Lots 6335, 3816, 8387 except that portion of District Lot 8337 lying North of the Little Slocan River and 3818, Kootenay District except parts included in Plan 18069 (the "Land") in 1951. The Land is bisected by a creek, approximately 160 acres located adjacent to the creek are meadows free of timber, the land on each side of the creek gets progressively steeper and these hillsides were mostly timbered. In each of the years 1951 to 1976 the Appellant's father only used the Land to raise cattle with calves. (However the parties are not in agreement as to whether all of the land was used to raise cattle.) The Appellant and his brother, Christian Larsen, assisted their father in farming the Land when they were not in school or not at work. The prime grazing area for the cattle on the Land was in the valley bottom along the creek. The cattle would graze part way up the hillside. The Land is 24 km. from the Appellant's father's residence at Lemon Creek. Cattle were only grazed on the Land during the period from May through September. The cattle were kept at the Lemon Creek property at other times. It was necessary to graze the cattle on the Land from May through September so that hay could be grown on the Lemon Creek property during that time. In 1964 the Apellant began working for Slocan Forest Products as a heavy-duty mechanic. As part of these duties the Appellant would repair heavy equipment in the woods. During these times the Appellant would observe the logging activities and would speak to the forestry people. In 1976 the Appellant's father passed away and the Appellant, together with his brothers, Noble Larsen and Christian Larsen, and his sister Gertrude Lindstrom, each inherited an undivided one quarter interest in the Land from their father. After the Appellant's father passed away in 1976, the Appellant in partnership with his brother, Christian, continued to only use the Land to raise cattle. Since 1984 the Appellant's sister, Gertrude Lindstrom, was pressuring the Appellant and his brothers to buy out her interest in the Land. On October 31, 1991 the Land, without the timber growing thereon was, valued at $328,350. Based on this valuation it was determined that Gertrude's one quarter interest in the Land, excluding timber, had a fair market value of approximately $100,000. The Appellant and his siblings decided in 1994 to log the property. The Appellant and his siblings had no direct experience with logging nor the necessary equipment to log the timber. In 1994 the property was cruised and it was estimated that there were 150 loads of timber located on the Land based on the assumption that the timber to be cut would have a butt size of 12 inches or larger. The Appellant and his brother, Christian, only wanted to remove all jackpine and all other species of timber with a butt size of 12 inches or larger since that would provide them with enough funds to buy out Gertrude's interest in the Land. The Appellant's brother and sister wanted all jackpine and all other species of timber with a butt size of 10 inches or larger to be removed since they felt that too much timber would be left if the minimum butt size was 12 inches or larger. The Appellant agreed to this greater amount of timber but no more. In 1994 the Appellant held verbal discussions with four different mills about logging the timber from the Land and asked for quotes of what they would pay for the timber located on the Land. C.P.S. Investments Inc. quoted the highest price of $570 per cubic metre for the timber located on the Land. . The Appellant and his siblings did not ask for a fixed price for the timber located on the Land because they felt it was fairer for both parties if the price paid for the timber located on the Land was $70 per cubic metre. It was the Appellant's understanding that no matter how experienced the person doing the timber cruise was that they could be off in terms of the amount of harvestable, merchantable timber that would come off of the Land. The Appellant and his siblings retained the services of Mr. Craig Gutwald, a chartered accountant, and Mr. Kenyon McGee, a barrister and solicitor to assist them with drafting the agreements governing the sale of the standing timber located on the Land. The Appellant and his siblings insisted that the timber be removed from the Land by December, 1994, so that the logging operations would not interfere with the use of the Land for farming and because they did not want the logging operations to drag on longer than necessary. The Appellant signed two agreements with C.P.S. Investments Inc. on July 28, 1994. The trees were first fallen and once all the trees had been fallen they were then hauled out. It took approximately 3 weeks to haul out all the fallen timber. Approximately once a week the Appellant would check to make sure trees with a butt size of 10 inches or less were not being logged. During the three weeks that the timber was being hauled out, the Appellant attended the site on a daily basis. This was the Appellant's only involvement in the logging process. Between August, 1994 and January 18th, 1995, C.P.S. Investments Inc. removed 9,204.28 cubic metres of timber from the Land. C.P.S. Investments Inc. paid the Appellant and his siblings a total of $644,300.16 for the timber. Timber was removed from approximately 250 acres of the Land. The remaining 70 acres of timbered Land was not logged because it as either too steep or was too swampy. The $644,300.16 received from C.P.S. Investments Inc. was split equally between the Appellant and his siblings. This was the first time since the Appellant's father first acquired the Land that timber had been removed from the Land on a commercial basis. After the Land was logged, the Appellant planted approximately 300 trees to prevent erosion. The tree stumps on the Land were not cleared or burned since the tree stumps were quite short (approximately 6 inches high) because the logging was done with a Faller/Buncher. The Appellant did not want to clear cut the property because that was visually unattractive, he needed some trees to provide shade for the cattle, and having trees standing allowed for natural seeding and prevented problems with erosion. The Appellant and Christian Larsen did not increase the size of their herd of cattle at any time after the logging took place. For the December 31, 1989 through 1997 taxation years the partnership formed by the Appellant and Christian Larsen reported the following beef sales: 1989 $22,322 1990 $22,668 1991 $23,767 1992 $24,250 1993 $21,664 1994 $23,849 1995 $23,996 1996 $15,280 1997 $19,036 The parties hereto by their respective solicitors have by their signatures endorsed hereon agreed to the facts as cited above. NEXT PAGE