Only 39% of Canadians know the tax benefits of charitable giving, says a 2014 Scotiabank poll. In our experience, even fewer know about the significant tax advantages of donating ecologically sensitive land.
The Income Tax Act gives favourable treatment to gifts of ecologically sensitive land and partial interests in land through the Ecogifts program. Landowners don’t need to sever their connection with the land. Types of gifts donated include conservation easements, residual interests and full title. To date, there have been 1,054 donations valued at over $635 million, protecting more than 150,000 hectares of wildlife habitat.
To claim a donation under the program, Environment Canada must approve the recipient and certify the property’s ecological sensitivity and fair market value. Eligible recipients include territorial, provincial or federal departments and agencies; municipalities; and approved registered charities that protect the environment. Find a complete list at ec.gc.ca/pde-egp.
For gifts made after February 10, 2014, the five-year carry-forward period for the unclaimed portion of the eligible amount of the gift will double to 10 years.
This is significant because gifts are often worth millions of dollars, and donors who don’t have sufficient income may not have been able to use the tax credit or deduction within the former five-year carry-forward period. This is particularly true of lands under development pressure (e.g., coastal or waterfront properties, and lands in close proximity to growing urban areas), where values have appreciated significantly. Such lands are often held by the same owners for decades (frequently farmers or people on fixed incomes).
Tanya is a technical writer earning $100,000 a year. Thirty years ago, she purchased an undeveloped three-hectare lakefront property just north of Muskoka, Ont. for $200,000. The property has a fair market value of $1.2 million today. Although not particularly large, it abuts Algonquin Park and includes marsh and important bird habitat. Tanya decides to donate her land to a local land trust as an ecological gift.
Here is the relevant tax information:
- Certified fair market value: $1,200,000
- Eligible amount of gift: $1,200,000
- Tanya’s taxable income: $100,000
- Her federal and provincial income tax, based on a 46% marginal tax rate: $46,000
- Approximate donation claimed in 2013 to reduce her net federal tax owing to zero: $109,313*
*(15% + 5.05%) of the first $200, plus (29% + 11.16%) of $109,113 = donation tax credit of $43,861
Federal/provincial non-refundable tax credits:
- Basic personal amount: $2,139
- Donation tax credit in year of gift: $43,861
- Total federal non-refundable tax credits: $46,000
Amount of donation available to carry forward: $1,090,687 ($1,200,000 – $109,313)
This scenario takes into account the 2013 basic personal amount of $11,038 (federal) and $9,574 (provincial). Calculations are based on 2013 taxation rates. With only $100,000 in taxable income, Tanya would likely need more than the five years allowed under the old rules to use the entire value of the donation. She stands to benefit, then, from Budget 2014’s changes.
Help clients take advantage
Habitat degradation, fragmentation and loss are the greatest threats to Canada’s biodiversity. Many key habitats—from forests and grasslands, to wetlands and shorelines—are found on private property. Landowners play a role in conservation. The Ecogift program gives Canadians who own ecologically sensitive land a way to contribute to habitat conservation and leave a legacy for future generations. More conservation-minded Canadian landowners take part in the Ecological Gifts Program each year, but it still remains one of Canada’s best-kept secrets.
Lawyer Karen Cooper presented the original request to double the carry-forward period on behalf of Canadian Land Trust Alliance in its pre-budget submissions for 2012. That goal became a reality in Budget 2014. Credits from qualified ecological donations made after February 10, 2014 can be carried forward 10 years instead of five.
By Karen Cooper, LL.B., LL.L. and Natasha van Bentum, CFRE. Karen Cooper is a lawyer with Drache Aptowitzer LLP. Natasha van Bentum is director of G2, a project at Tides Canada Initiatives. She can be reached on Twitter at @GiveGreenCanada.