Budget changes donation rules

This year’s budget included a few notes relating to charitable giving and donations. The goal, says Curtis Davis, is to start simplifying the tax code.

Davis, who’s director of tax and estate planning at Mackenzie Investments in Toronto, highlights the budget’s mention that the First-Time Donor’s Super Credit will expire at the end of 2017 as planned.

He suggests, “It was only a $250 credit on the first $1,000 donation, and spouses could share it, but the max was $250. That’s not a huge loss, but make your first donation by the end of this calendar year if you want to use it.”

Aside from that, the government’s biggest proposed change is to the ecological gifts program, which is managed by Environment and Climate Change Canada (ECCC). Under that program, donations of ecologically sensitive land are eligible for special tax assistance; easements, covenants or servitudes on such lands are known as ecogifts.

Read: Tax break today, legacy tomorrow (2014 article)

In a nutshell, individual ecogift donors can claim a charitable donation tax credit, while corporate donors are eligible for a deduction. Up to the full amount of a donation can be claimed in the first year, while unused amounts can be carried forward for 10 years (prior to 2014, amounts could only be carried forward for five years). In most cases, capital gains are exempt from tax.

This sounds like a great deal.

And, for the most part, the government has no qualms with the program—in Quebec, the budget even proposes to encourage more ecogifts through making it possible for “certain donations of personal servitudes [to] qualify as ecogifts.”

However, there are a few changes of note, says Davis.

A 2013 document from Environment Canada gives examples of several types of land to which the ecogifts program applies, as well as ways in which people have been able to donate (note that this document pre-dates Budget 2017, so some information may be dated). Woodlots and properties that are home to large varieties of wildlife and vegetation, and coastal lands that are nesting grounds for birds are referenced as types of land.

The Liberals have proposed expanding the 50% tax that is currently imposed when a charity receives a gift of ecologically sensitive land, and then changes the land’s purpose or disposes of it without the consent of the ECCC, he explains. If that occurs, “the recipient is subject to a tax of 50% of land’s fair market value.”

The problem, says Davis, is the government says this tax isn’t always imposed if an organization that receives eco-sensitive land changes or disposes of that land after the land has been transferred from another organization for consideration, or payment. The government wants to make sure organizations are incentivized to continue to protect land no matter how it changes hands.

For example, says Davis, “there’s the opportunity to do split receipts [when] I donate land. There were scenarios where people donated and while part of [the land] was a gift, they also received money, or consideration, for part of it. The government says [people] can get a receipt for the value of gift but there’s no receipt where they receive consideration.”

As a result, says Davis, “this is a hint that maybe there were ways to structure [transactions] between organizations for consideration, where the receiving organization could then change the use of land or dispose of it without consent. It sounds like there were scenarios that came up,” and thus the Liberals wanted to close the loophole.

The impact of this change will be small, says Davis, who says he’s never dealt with these types of gifts personally. There are several hurdles when dealing with ecogifts, he adds: when they’re donated, ECCC approvals are case-by-case, as is the valuation of the gifts themselves. “It’s a very niche area of giving,” explains. “Still, the government wants to protect sensitive land.”

Other proposed changes to the program include:

• If municipalities receive ecogifts, they will now have to be approved as a recipient by the ECCC on a case-by-case basis. Before, they were automatically approved. This is “a formality change,” says Davis.
• Private corporations could no longer accept ecogifts. “The concern there is often the donor is related to the board of directors [of the corporation]. Think of a family foundation. […] The Liberals saw that as a conflict of interest.”

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