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:
Can the donor gift an easement on ecological property without realizing a capital gain on the disposition?
Position: Yes.
Reasons: Legislation
XXXXXXXXXX 2002-017428
K. Cooper, LL.B.
December 9, 2002
Dear XXXXXXXXXX:
Re. Ecological Gift
This is in reply to your letter dated November 14, 2002 in which you requested our comments with respect to the tax implications of a proposed donation of a conservation easement.
The particular situation outlined in your letter appears to be a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments which may be of assistance.
Generally, when property is disposed of by an individual to any person by way of gift inter vivos, the taxpayer is deemed to have received proceeds of disposition equal to the fair market value of the property, pursuant to paragraph 69(1)(b) of the Income Tax Act (the "Act"). If the individual donates an easement in respect of ecologically sensitive land to a registered environmental charity in accordance with the requirements in the definition of "total ecological gifts" in subsection 118.1(1) of the Act, subsection 118.1(12) provides that the fair market value of the easement for the purposes of paragraph 69(1)(b) will not be considered to be less than the decrease in the value of the subject land that resulted from making the gift. Subsections 118.1(10.1) to (10.5) of the Act authorize the Minister of the Environment to determine the fair market value of such a gift upon the request of the individual.
While a gift will generally result in a disposition of the property at fair market value and a recognition of the resulting capital gain, subsection 118.1(6) of the Act provides special rules relating to gifts of capital property including easements, allowing for an elected amount, not greater than the fair market value and not less than the adjusted cost base of the property, to be designated as both the proceeds of disposition of the property and the amount of the gift. This enables the donor to make the gift without realizing any capital gains. An official donation receipt must be submitted along with the individual's election and the election must be made in the individual's tax return for the year in which the gift is made. We have enclosed a copy of IT-288R2 for additional information on the designation provided under subsection 118.1(6) of the Act.
We hope that our comments will be of assistance.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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