Environment Canada seems an unlikely partner in saving taxes, but its Ecological Gifts Program can do just that. With the help of the program, Don and Heather Elliott have conserved a rare seven-hectare woodlot northeast of Barrie, Ontario into perpetuity. “Don wanted to protect a small corner of the world to ensure future generations could experience the same joy he had as a child while playing in the woodlot,” explains Heather.
The Ecological Gifts Program enables individual and corporate landowners to protect pieces of nature into perpetuity by donating ecologically sensitive lands to environmental charities or government bodies. Many of these areas are of provincial or national significance, and home to species at risk.
Over 138,000 hectares of wildlife habitat have been protected since the program’s inception in 1995, and donors have given almost 900 ecological gifts valued at over $558 million. Over a third of these gifts contain areas of national or provincial significance.
Like the woodlot donated by the Elliotts, many important wildlife habitats are found on private properties such as cottages, ranches and farms. The people who own these lands play an important role in encouraging restoration and stewardship.
Significant income tax benefits
Most donate ecogifts for non-financial reasons. However, the Income Tax Act provides favourable tax treatment for eligible gifts of ecologically sensitive land and partial interests in land.
Ecological gifts receive tax treatment superior to most other charitable gifts, such as:
- eliminated taxable capital gain on disposition of the property
- no income limit for calculating the tax credit/deduction
- donation value certified by the Government of Canada
- tax liability for donees that do not protect the gifted land
The benefits of ecogifts can be significant when federal and provincial tax benefits are combined. Karen Cooper, LL.B, LL.L of Carters Professional Corporation and formerly with CRA, has extensive experience in the area of ecological gifts. “The income tax benefits of making an ecological gift vary greatly depending on the financial situation of each donor,” she says. “The ITA requirements of making an ecological gift are becoming more complex, [so advisors need to] ensure clients understand all legal and tax implications of the gift. However, individual and corporate landowners interested in protecting nature by donating ecologically sensitive land, or interests in that land, to an environmental charity will receive enhanced income tax benefits in addition to the satisfaction of knowing they’ve contributed to greening their environment.”
Receiving an ecological gift
Landowners can donate gifts of ecologically sensitive land to environmental charities through a process approved by the Environment Minister (or delegated authority), as well as to federal, provincial, territorial and municipal governments. There are more than 190 eligible recipients across Canada, including land trusts and nature conservation groups. The Environment Minister certifies the property as ecologically sensitive, approves the recipient of the gift, and certifies the fair market value of the donated property.
Although many ecological gifts have no conditions attached, there are options available that allow donors and recipients to tailor arrangements to suit particular needs. For example, approximately 40% of all ecogift donations have been partial interests in land known as conservation easements, covenants or servitudes. A conservation easement is an agreement between a conservation body (the easement holder) and the landowner, with restrictions and/or allowances regarding land use. The easement holder can inspect the property to ensure compliance with the agreement.
Specific benefits of ecogifts
Corporate donors may deduct the amount of their ecological gift directly from their taxable income, while the value of an individual’s ecological gift is converted to a non-refundable tax credit. The tax credit is calculated by applying a rate of 15% to the first $200 of the donor’s total gifts for the year and 29% to the balance. As well, in most provinces, a reduction in federal tax payable will also reduce provincial tax.
Unlike other charitable gifts, there is no income limit to the total value of ecological gift donations eligible for the deduction or credit in a given year. Any unused portion of the donor’s gifts may be carried forward for up to five years.
Donors who dispose of capital property, such as land, usually realize a capital gain – a portion of which is taxable – where the deemed proceeds of disposition exceed the property’s adjusted cost base (usually the original purchase price of the land). This is generally the amount by which capital property appreciates in value while it is in the owner’s possession. While for most gifts the taxable portion is 50% of the capital gain, in the case of an outright ecological gift, no portion is taxable.
Split receipting is applicable to all eligible transfers of real property to qualified recipients under the Ecological Gifts Program.
An increasing number of conservation-minded Canadian landowners take part in the Ecological Gifts Program each year. Each donation, no matter how small, makes a substantial contribution to the creation of a network of protected areas that reaches across virtually every habitat and region in Canada. And as Karen Cooper reminds us, “Without the help of professional advisors that were familiar with the Ecological Gifts Program, these kinds of donations may not occur.”