Save taxes while saving the environment

Only 39% of Canadians know the tax benefits of charitable giving, says a 2014 Scotiabank poll. As an active investor, you’re likely one of the 39%, but did you know that there are also significant tax advantages to donating ecologically sensitive land?

The Income Tax Act gives favorable treatment to gifts of ecologically sensitive land and partial interests in land through the Ecogifts program. As a landowner, you don’t actually need to sever your 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 Ecogift 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 conserve and protect the environment. A complete list can be found here.

Budget 2014 changes

For gifts made after February 10, 2014, the five-year carry-forward period for the unclaimed portion of the eligible amount of the gift doubles 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 (for example, 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).

Tax scenario

To begin thinking about the potential benefits to you, consider the hypothetical example of Tanya.

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 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 is simplified to illustrate general federal/provincial income tax implications. It takes into account the 2013 basic personal amount of $11,038 (federal) and $9,574 (provincial). Calculations are based on 2013 taxation rates.

More than a tax strategy

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 vital role in their conservation. The Ecogift program gives you 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.

Natasha van Bentum is Director of G2, a project at Tides Canada Initiatives. Karen Cooper is a lawyer with Drache Aptowitzer LLP.