As a young boy, Jim Little spent many hours observing wildlife near his grandparents’ land in Peace River Country in northern British Columbia. He especially liked to visit a nearby lake, which had waterfowl visitors such as Western Grebes, and rare plant species like the Calypso Orchid.
Many years later, in 1999, Jim and his wife, Margaret, purchased 52 hectares (128 acres) of land in the same area, including the lake, as well as wetlands, muskeg and mixed forest.
The Littles became deeply attached to this land. But they were concerned about protecting it for future generations.
Jim and Margaret decided to donate this ecologically sensitive land to the Nature Trust of British Columbia, a land conservation group in western Canada. Since 1971, the group, along with its partners, has invested more than $80 million to secure over 70,000 hectares (173,000 acres) across the province. The lake is now protected forever, and has been named “Little-Levin Lake” after Jim’s grandparents and parents.
The gift was made through the federal government’s Ecological Gifts Program (EGP). And even though saving on income tax was not a priority for Jim and Margaret, it was a bonus.
The Income Tax Act provides favourable treatment for gifts of ecologically sensitive land, and partial interests in land through the EGP.
It was introduced in 1995 to encourage conservation of habitat and biodiversity across Canada. Since inception, people and companies have donated more than 1,057 ecological gifts, covering 151,014 hectares and valued at more than $635 million.
Landowners do not need to sever their connection with the land. Types of ecogifts donated to land trusts, charitable conservation organizations and government agencies include conservation easements, residual interests and full title.
Additional details include:
- ecogift donations are not subject to the usual income limits (usually 75% of income) in calculating the income tax credit (for individuals) or deduction (for corporations);
- ecogifts made after May 2, 2006 benefit from the elimination of the normal capital gain
realized on disposition of the property—currently 50% of the capital gain for non-certified gifts or sales of land is included in taxable income;
- Environment Canada issues a Statement of Fair Market Value certifying the gift’s value after the gift is made, which the donor submits with the income tax return;
- potential donors who want certainty about the value of their intended donation can request that Environment Canada issue a Notice of Determination of Fair Market Value before the donation is made;
- Environment Canada reviews and approves charitable recipients to ensure such organizations are dedicated to protecting Canada’s natural heritage;
- donors worried about their cherished lands can be confident that income tax penalties can be imposed on charitable and municipal recipients of ecogifts who dispose of title or make a change of use without Environment Canada’s prior authorization;
- making an ecogift can help eliminate potential family disputes over what to do with the land following the death of the owner; and
- an ecogift involving certain partial interests may reduce the property tax burden.
To claim a land donation as an ecogift, Environment Canada must approve the recipient and certify the ecological sensitivity and fair market value of the gift. Eligible recipients are territorial, provincial and 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, see the Ecological Gifts Program website, www.ec.gc.ca.
In some instances, it’s possible for a donor to receive cash for up to 80% of the value of his gift. The eligible amount of the gift is the difference between the fair market value of the donated land and the amount of the cash advantage received.
And split receipting can be applied to all donation options described above.
In addition, a license entitling the donor to use the property after title is donated could be considered as a split-receipt advantage.
Sample tax scenario
Sue earns $75,000 per year as an accountant in Halifax. For more than 40 years, she’s owned six hectares of property in Lunenburg County, in an area with a planning restriction that prohibits development on lots smaller than two hectares.
The land has been in Sue’s family for over a century, and holds many happy memories of camping and picnicking.
In recent years, wealthy foreign visitors who plan to build homes or cottages have purchased large areas of Nova Scotia’s southern coast. Sue is concerned there may be little undeveloped coastal habitat left.
After speaking to a local environmental group about her options, she decides to keep what’s called a life interest in the land so she may live out her days there, and donates the remainder interest to the group as an ecogift.
The group also enters into an agreement with Sue to use and care for the property.
The land, originally valued at $80,000, is now worth $400,000. The remainder interest is worth $250,000. For capital gains purposes, if a piece of property was owned previous to December 31, 1971, the adjusted cost base is determined as of that date.
Here’s how the tax savings break down (see “Tax breakdown,” this page).
Many Canadians own eligible, ecologically sensitive land and care about the future conservation of their property. If your clients could benefit from the EGP, visit Environment Canada’s website for additional information about how landowners can leave a legacy for tomorrow and receive a tax
Certified fair market value of remainder interest
The certified fair market value of a remainder interest is generally the current appraised fair market value of the gift less the value of the life interest. The Minister of the Environment must certify the value. Gifts of remainder interests must also meet CRA requirements described in IT-226R.
Income reported for income tax purposes from employment and other sources ($75,000).
Donation limit or eligible amount in the year of the gift
For certified ecological gifts, the entire fair market value of the donation may be used to claim the related tax credit and reduce the tax payable. However, because tax credits are non-refundable, Sue would not use an amount larger than required to offset her federal tax and calculate the tax credit.
Net federal tax of the donor
Amount based on 2013 federal personal income tax rates.
Amount of donation claimed in the year of the gift
Amount calculated to provide a donation tax credit sufficient to completely eliminate the donor’s federal tax payable. Any amount of the gift that is not used to generate donation tax credits in the year of the gift may be carried forward and used for up to five years.
Federal non-refundable donation tax credit deducted in the year of the gift
Based on 15% of the first $200 and 29% of the balance of the donation amount claimed in the year (assuming a claim for the basic personal exemption with no other deductions, charitable or otherwise).
Amount available for carry forward
Subtract the amount used in the year of the gift from the eligible amount of the gift ($250,000 minus $40,770).
Source: Environment Canada; 2013 tax calculations by Advisor Group
Natasha Van Bentum, CFRE is Director of Give Green Canada, a project at Tides Canada Initiatives. She is a member of Canadian Association of Gift Planners and the Institute for Legacy Management in the U.K.