Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Are conservation interests made pursuant to the Manitoba Conservation Agreements Act (MCCA) ecological gifts within the meaning "total ecological gifts" in subsection 118.1(1) and paragraph 110.1(1)(d)?
Position:
General comments. Whether or not the creation of a conservation interest pursuant to the MCCA results in an ecological gift will depend upon the terms and conditions of the agreement.
Reasons:
The MCCA permits conservation interests to be created either in perpetuity or for a specified term. In our view, a conservation interest would not be a gift of land unless the interest is perpetual. However, the potential for the interest to be extinguished in future will not negate a gift if the extinguishment will not be within the grantor's control.
Manjit Kerr-Uphal
Canadian Wildlife Service
Environment Canada 2002-016340
3rd Floor, Place Vincent Massey R. Maley
Hull QC K1A 0H3
March 11, 2003
Dear Manjit Kerr-Uphal:
Re: Restrictive Covenant - the Manitoba Conservation Agreements Act
This is in response to your letter dated August 27, 2002 in which you request our comments on a particular agreement made pursuant to the Manitoba Conservation Agreements Act S.M. 1997, c. 59 (the MCCA). In particular, you have asked whether the parties referred to as "the Grantors" under the agreement may include an amount in their "total ecological gifts" for the relevant taxation years in respect of the restrictive covenants set out in the agreement (herein referred to as "the conservation interest") should the land subject to the conservation interest be certified by the Minister of the Environment (or a person designated by that Minister) to be ecologically sensitive land, the conservation and protection of which is, in the opinion of that Minister, important to the preservation of Canada's environmental heritage.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments. Statutory references are references to the Income Tax Act (Canada) unless indicated otherwise.
Subsection 118.1(1) and paragraph 110.1(1)(d) define a taxpayer's "total ecological gifts" for a taxation year to include the total of all amounts, not previously deducted in computing the taxpayer's tax payable under the Act (or, where the taxpayer is a corporation, in computing its taxable income) for a preceding taxation year, and not included in the taxpayer's total cultural gifts for the year, each of which is the fair market value of a gift of land satisfying the following requirements:
1. the recipient of the gift was one of the following qualifying donees:
? Her Majesty in right of Canada or a province
? a municipality in Canada, or
? a registered charity that, in the opinion of the Minister of the Environment has as one of its main purposes the conservation and protection of Canada's environmental heritage, and that has been approved by that Minister or a person designated by that Minister in respect of the particular gift;
2. the land has been certified by the Minister of the Environment or a person designated by that Minister, to be ecologically sensitive land, the conservation and protection of which is, in the opinion of that Minister or that person, important to the preservation of Canada's environmental heritage; and
3. the gift was made by the taxpayer in the year or in any of the five immediately preceding taxation years.
A "gift of land" for these purposes includes a servitude for the use and benefit of a dominant land, a covenant or an easement.
In assessing whether or not a gift has occurred, the CCRA generally relies on the definition set out in IT-110R3, "Gifts and Official Donation Receipts":
3. A gift, for purposes of sections 110.1 and 118.1, is a voluntary transfer of property without valuable consideration. Generally a gift is made if all three of the conditions listed below are satisfied:
(a) Some property - usually cash - is transferred by a donor to a registered charity.
(b) The transfer is voluntary; and
(c) the transfer is made without expectation of return. No benefit of any kind may be provided to the donor or to anyone designated by the donor, except where the benefit is of nominal value.
Proposed amendments to the Act will allow the CCRA to recognize a gift, for tax purposes, in certain circumstances where a donor receives consideration for the transfer of property. Reference in this respect may be had to the CCRA's Income Tax Technical News No. 26.
The CCRA generally does not recognize temporary transfers of property as gifts and a frequent consideration in assessing whether a gift has occurred is whether the subject of the gift could revert to the grantor. In this respect, we have noted that the MCCA appears to allow, but not require, the creation of permanent conservation interests in the form of easements or covenants. For example, the MCCA allows conservation interests to be created for specified terms. The MCCA also permits, as a term or condition of a conservation interest, provision for termination of that interest on application to court, where the grantor establishes that it is experiencing hardship.
In our view, a gift of land only occurs in circumstances where a real property interest is permanently granted to the qualifying donee. In our view, a conservation interest created for a specified term is not a gift of land within the meaning "total ecological gifts" in subsection 118.1(1) and paragraph 110.1(1)(d) of the Act. However, we agree that the potential for termination of a conservation interest in circumstances that are not within the grantor's control would not prevent that interest otherwise being viewed as a gift. For example, a perpetual conservation interest that otherwise constitutes a gift for purposes of the Act will not be disqualified from "ecological gift" tax treatment merely because hardship relief may be provided by court order.
We trust that this information is helpful in clarifying the types of conservation interests that would be viewed as "ecological gifts" within the definition set out in subsection 118.1(1) and paragraph 110.1(1)(d) of the Act. Should you have questions respecting the types of conservation interests intended to be benefited by the "ecological gift" rules in the Income Tax Act, we recommend that you speak with officials of the Tax Policy Division, Department of Finance, who are responsible for matters of tax policy. Mr. Ed Short, Senior Tax Policy Office, Tax Legislation Division, Department of Finance, 140 O'Connor Street, 17th Floor, East Tower K1A 0G5, may be contacted in this regard.
Yours truly,
F. Lee Workman
Section Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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