The Income Tax Act provides favorable treatment for gifts of ecologically sensitive land, and partial interests in land through the Ecological Gifts Program (EGP). This treatment includes an elimination of taxable capital gains realized on the disposition of ecologically sensitive land and the provision of a tax credit or a deduction to donors available for up to 100% of their income. The types of ecological gifts donated to land trusts, charitable conservation organizations, and government agencies can include conservation easements (essentially the land owner retains the land but limits development), residual interests (the land owner retains the land during their life or the life of another and then the transfer occurs), and full title.
Recipients and Certification
To claim a land donation as an ecological gift, Environment Canada must approve the recipient and certify the ecological sensitivity and fair market value of the gift. Eligible recipients are territorial, provincial or federal departments or agencies, a municipality or an approved registered charity whose main purpose is the conservation and protection of the environment. For a list of eligible recipients and criteria for ecological sensitivity, see the Ecological Gifts Program website, http://www.ec.gc.ca/pde-egp.
Carry Forward Period Has Been Doubled
We presented a request to double the usual carry-forward period for charitable gifts on behalf of Canadian Land Trust Alliance in its pre-budget submissions for 2012. The first budget bill approved in respect of Budget 2014 amended subparagraph 110.1(1)(d)(iii) and paragraph (c) of the definition of “total ecological gifts” in subsection 118.1(1) to allow the charitable deduction or credit from an ecological gift to be carried forward for ten (10) years, instead of the current five (5) years. This amendment will apply to donations made after February 10, 2014 and is intended to encourage more gifts for the protection of our natural environment.
Why is this significant?
Because ecological gifts can often be high in value, often in the millions, some donors who do not have large incomes may not have been able to use the tax credit or deduction within the former 5 year carry-forward period. This is particularly the case for lands under significant development pressure (for example, coastal or waterfront properties, and lands in close proximity to growing urban areas) where land values have appreciated significantly. Such lands have often been held by the same owner for decades – frequently farmers or others on limited or fixed incomes – who do not have the income to offset the tax receipt over the 5 year period.
It is also significant because, at the same time that the Canadian Land Trust Alliance was requesting an increase to the carry-forward period for ecological gifts others in the sector were requesting the complete elimination of any taxable capital gains on all gifts of real property. This proposal would have had the effect of completely undercutting the tax policy supporting the Ecological Gifts Program, which is based on support for the protection of the environment rather than simply encouraging charitable giving, and the virtual elimination of the program.
Tanya is a technical writer and earns $100,000 a year. Thirty years ago, she purchased an undeveloped three hectare lakefront property just north of the Muskokas for $200,000. The property has a fair market value of $1.2 million today. Although not particularly large, it abuts Algonquin Park and its natural values include marsh and important bird habitat. Tanya decides to donate her land to a local land trust as an ecological gift.
Detailed breakdown of donation tax credit calculations:
- Certified fair market value $1,200,000
- Eligible amount of gift $1,200,000
- Taxable income $100,000
- Federal/prov. income tax based on 46% marginal tax rate $46,000
- Approximate amount of donation claimed in year of gift to reduceFederal/provincial non-refundable tax credits:
- net tax owing to zero: $95,000
- Basic personal amount $2,139
- Donation tax credit in year of gift $43,861Total non-refundable tax credits $46,000
- This scenario is hypothetical and simplified to illustrate general federal/provincial income tax implications. With only $100,000 in taxable income, it would likely take Tanya more than the former 5 years to use the entire value of the donation so she will likely benefit from the recent Budget amendment.
- Amount of donation available to carry forward: $1,105,000 ($1,200,000 minus $95,000)
- Net income tax payable $0