Protect Habitat and Get a Tax Break | FBC, Canada's Farm & Small Business Tax Specialist

Protect Habitat and Get a Tax Break

Got a piece of wilderness you want to see preserved in its natural state? You could donate it to charity or to a government agency for protection in perpetuity and get peace of mind and a nice tax break in return.

If you own rural or wilderness land that you would like to see preserved in its natural state for generations to come, you might look into making a qualifying ecological gift (ecogift) of that land. Not only would you leave a legacy for tomorrow, you would receive a tax break today.

Loss and degradation of wildlife habitat due to various factors, such as housing, road construction, and industrial or recreational activities, are among the greatest threats to the diversity of living species in a given area. Environment Canada's Ecological Gifts Program allows landowners to protect the habitat on their ecologically sensitive lands through partial or full donation of these lands to an eligible Canadian charity, federal or provincial agency or incorporated municipality. 

The Benefits of Ecogifts 

First, ecogifts are subject to income tax treatment superior to that for most other charitable donations. To be specific, ecogifts are not subject to the normal limits (usually 75% of net income) in calculating the non-refundable income tax credit for individuals or income tax deduction for corporations. Also, the income inclusion rate for capital gains arising on a certified ecogift of appreciated land is only 25%, which is half of the 50% rate for non-certified charitable gifts of land. Second, making a gift that involves even a partial interest in your lands could certainly ease your property tax burden.

You could also receive cash for up to 80% of the value of the land under split-receipt provisions. The eligible amount of your ecogift would be the difference between the fair market value of the donated land and the cash received. You still would receive a charitable donation receipt for this eligible remaining amount.

An ecogift has several other benefits that could ease your mind about how your cherished lands might be treated should you gift them.

First, Environment Canada reviews and approves the charitable recipient of your lands to ensure that the organization is truly dedicated to protecting natural heritage.

Second, sizeable income tax penalties can be imposed on ecogift recipients if they either dispose of the title to those lands or make a change of use without prior Environment Canada authorization.

And finally, if you fear the potential for family disputes over the land when you're gone, making an ecogift is one way to eliminate that risk.

You don't necessarily need to relinquish the connection to your land. You could conserve the natural heritage of your property and still retain ownership by entering into a covenant or conservation easement agreement with a nature conservancy that would restrict future designated usage in perpetuity.

Or you could donate the property but retain the right to use or live on the land for your lifetime or even the lifetime of your children.

Or you could donate the land title and all of the woods, meadows, wetlands and streams, reserving no rights for yourself except perhaps a residence such as a farmhouse, homestead or cottage.

Example

The example outlined in the chart gives you an idea of the tax savings that ecogifts can generate.

It assumes the donor of the personal ecogift is an individual residing in Ontario who is in the maximum federal/Ontario 46% tax bracket. He has made at least $200 in other charitable donations in the year of the ecogift.

Sample ecogift credit for Ontario resident in highest tax bracket
Charitable ecogift donation $300,000  
Federal/Ontario non-refundable tax credit @ 40%   $120,000
Fair market value of ecogift (full title) $300,000  
Less the adjusted cost base -100,000  
Total capital gains $200,000  
Taxable capital gains @ 25% $50,000  
Federal/Ontario tax @ 46%   $23,000
Net credit ($120,000 less the income tax)   $97,000

The Ecogifting Process

You first need to find an eligible recipient for your donation. A wide variety of properties with naturally preserved habitat will meet Environment Canada criteria to be classed as ecologically sensitive for a donor landowner.

However, not all eligible recipients will accept all lands. For example, a land trust may accept only those areas inhabited by endangered species. The organization you are considering for your lands should be able to evaluate the environmentally sensitive aspects of your land.

You don't need to worry if you don't have a specific recipient organization in mind. The ecogifts website at www.cws-scf.ec.gc.ca/ecogifts currently lists more than 160 national and provincial charities that are eligible to receive ecogifts. Environment Canada adds new organizations as they become eligible and deletes any that no longer are eligible to receive ecogifts.

Environment Canada then needs to see data to support the ecologically sensitivity of your property and an appraisal of the property's fair market value. The recipient organization can compile the data describing the ecological aspects of the land, but you will need to have an appraiser (one that has taken ecogift valuation training) to establish fair market value.

If the proposed ecogift meets all necessary criteria, Environment Canada will give you a certificate for donation of ecologically sensitive land and a statement of fair market value. The recipient organization will give you an official charitable donation receipt.

More than 450 ecogift properties worth more than $123 million have been donated across Canada, permanently conserving special areas such as wetlands, woodlands, and other wildlife habitat. These donations have ranged from thousands to millions of dollars and some are among the largest charitable gifts in Canada.

Because ecogifts involve some complex issues, you must consult with tax, financial and legal professionals who are well informed on the subject before making such a gift. Make sure you talk with these experts before you even begin the process to certify your property as ecologically sensitive to ensure you fully understand the implications of the donation.

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