Donating ecologically sensitive land is a way to do your part to help the environment. The Canadian government encourages these donations by giving a double tax advantage to the donor. However, there are strict rules that apply and you need to follow them to claim these advantages.
Defining Ecologically Sensitive Land
Ecologically sensitive land is defined by the Income Tax Act as land that is important to the preservation of Canada’s environmental heritage. To qualify for tax advantages, you must first get a certification from the Minister of the Environment that your land is ecologically sensitive. If the land is located in the province of Quebec, then the certificate must come from the provincial government.
Land is defined broadly and does not only refer to the actual ownership of the property. It also includes a partial interest in ecologically sensitive land such as a conservation easement, covenant or, in Quebec, a servitude.
To qualify, the donation must be made to one of the following, known as qualified donees:
- The government of Canada
- A province, territory or municipality
- A registered charity approved by the Minister of the Environment
- A municipal or public body performing a function of government in Canada
When issuing the eligibility certificate for the land, the Minister of Environment will also certify that the intended donee is a qualified donee.
Donations Tax Credit
If the conditions for eligibility are met, the donation will qualify for both the federal and provincial donations tax credit.
This is a substantial tax advantage since the credit reaches 29 percent of the value of the gift at the federal level, plus up to 24 percent depending on your province of residence.
The amount of the credit is the fair market value of the land that has been donated. This value is determined by the Minister of Environment at the same time that the certification of eligibility is issued. The determination of value is valid for 24 months. If the donation is made later than this time, the valuation process must be redone.
Since land is often valuable, you can reduce your income taxes to zero. If you cannot use the credit completely because your income is not high enough, it can be carried forward for 10 years.
Zero Rate for Capital Gains Inclusion
Donation of land is a deemed disposition under the Income Tax Act. In other words, if the land is worth more than you originally paid for it at the time of donation, you will have a capital gain.
Normally, 50 percent of capital gains must be included in your income and taxes are paid accordingly. However, in the case of ecologically sensitive land, there is a special inclusion rate of zero. Therefore, you will not be taxed on the gain in value of the land.