CL Ltd. is a long distance moving company. In 2016, CL purchased a 40 acre tract of vacant land in an industrial park near Calgary. The cost of this land was $11.8 million.

It was the intention of Casper Lopez, president and driving force of CL Ltd., to relocate all of CLs operations to this site in about 4 to 5 years. He planned to add furniture storage and self storage facilities. However, Casper was aware that he had purchased this land at a very favourable price. It was his belief that, if the plans changed, CL would be able to make a significant gain by reselling the land. He informed the property manager of the industrial park that he might be interested in selling part of the land if the price was right.

Early in 2018, Casper is informed that he has terminal cancer. Shortly afterwards, CL receives an unsolicited offer of $4.3 million for 10 acres of the Calgary site which Casper accepts. In order to facilitate the sale, CL takes back a $2.8 million first mortgage on the property. The mortgage will be repaid in 4 annual instalments of $700,000 each, beginning in 2019.

CL still intends to move its current operations to this site. However, because of Caspers illness, future plans to use the remainder of the site for new storage facilities are unlikely to move forward. CL is considering whether more of the land should be sold as it does not appear it will be needed. There are three purchasers who are interested in buying 1 to 2 acres each.

CL has sought your advice as the appropriate tax treatment of the sale transaction. Provide the required advice.