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:

A charitable organization is proposing to undertake various transactions (i.e., grant a conservation easement to another charity, sell the land with the easement to a purchaser, and immediately thereafter reacquire the conservation easement from the other charity) in order to protect ecologically sensitive land. Is the purchaser entitled to include the excess of the purchase price over the fair market value of the property in computing the purchaser's charitable tax credit or deduction pursuant to the draft gifting legislation?

Position: Yes, on the basis of the facts described.

Reasons:

Pursuant to the draft gifting legislation released on December 20, 2002, where the fair market value of the advantage to a taxpayer does not exceed 80% of the amount paid by the taxpayer to a qualified donee, the taxpayer may include the difference as an eligible amount of a gift in computing the taxpayer's charitable tax credit or deduction.

XXXXXXXXXX 							2003-000516

March 25, 2003

Dear Sirs:

Re: XXXXXXXXXX ("ACO")

This is in reply to your letter of February 25, 2003 in which you requested our views with respect to the income tax implications to a purchaser of real property held by ACO under certain proposed provisions in the draft legislation released by the Department of Finance on December 20, 2002 (the "Draft Legislation"). These proposed provisions generally apply to gifts made after December 20, 2002.

As indicated in paragraph 20 of Information Circular 70-6R5, the CCRA does not provide advance income tax rulings on draft legislation but we do provide non-binding technical opinions at no charge on the application of draft legislation. In this regard, we are prepared to offer the following non-binding comments.

FACTS

1. ACO is a registered charitable organization for purposes of the Income Tax Act (the "Act").

2. One of ACO's objectives is to acquire privately owned land in XXXXXXXXXX, or easements thereon, for conservation purposes.

3. In XXXXXXXXXX, ACO purchased, for $XXXXXXXXXX, all of the private lands XXXXXXXXXX, as well as farm buildings and improvements with a view to protecting the ecological significance of the lands. Such lands comprise, in aggregate, just under XXXXXXXXXX sections of land in the municipal district of XXXXXXXXXX ("Land").

4. The fair market value ("FMV") of the Land was determined by a professional valuator, as of XXXXXXXXXX, to be $XXXXXXXXXX without a conservation easement ("Easement") or the farm buildings and improvements, and $XXXXXXXXXX with the Easement (but not the buildings and improvements). The farm buildings and improvements were recently determined to have an aggregate FMV of $XXXXXXXXXX.

5. The Easement generally will prevent the owner of the Land from developing the area covered by the Easement. The Easement covers all of the Land. The purpose of the Easement is to ensure conservation of the subject land.

6. The Easement will be perpetual.

7. ACO has been provided with legal advice that the Easement might not be valid if it is granted to ACO by ACO. To avoid this concern, ACO has been advised to have the Easement placed on the Land with the assistance of an accommodating charity ("BCO"). BCO will be a registered charitable organization for the purposes of the Act and will be a "qualified organization" for certain purposes of the XXXXXXXXXX.

PROPOSED TRANSACTIONS

8. ACO will have a current appraisal of the FMV of the Land with the Easement and the farm buildings and improvements performed by a professional valuator ("Current Appraisal").

9. ACO will grant the Easement to BCO pursuant to a conservation easement agreement and will retain the right to reacquire the Easement for nominal consideration. The Easement will be registered by BCO and ACO against the title to the Land with the XXXXXXXXXX.

10. ACO will list the Land and the farm buildings and improvements for sale for an amount to be specified in the listing documentation. Such amount will exceed the FMV of the Land with the Easement and the farm buildings and improvements. The listing documentation will indicate that the appraised FMV of the Land with the Easement and the farm buildings and improvements ("Appraised Value") is the amount determined pursuant to the Current Appraisal and if the Appraised Value does not exceed 80% of the purchase price ("Qualifying Offer") that ACO will issue to the purchaser ("Purchaser") an official donation receipt for the amount by which the purchase price exceeds the Appraised Value ("Excess Amount").

11. Upon the acceptance by ACO of a Qualifying Offer, ACO will issue an official donation receipt to the Purchaser. The official donation receipt will contain, in addition to the information already prescribed by section 3501 of the Income Tax Regulations, a description of and the amount of the advantage and the eligible amount of the gift.

12. The purchase and sale documentation will indicate that the payment of the Excess Amount is intended to be a gift from the Purchaser to ACO.

13. Immediately after the sale of the Land is closed, BCO will transfer the Easement to ACO for nominal consideration. This transfer will be registered with the XXXXXXXXXX.

PURPOSE OF PROPOSED TRANSACTIONS

14. The proposed transactions will facilitate a transfer of the Land from ACO to a Purchaser in such a manner that the ecologically sensitive portion of the Land will be protected by a conservation easement (i.e., the Easement). This particular structure is being utilized to accommodate a Purchaser who has the dual intention of acquiring the Land subject to a conservation easement along with the farm buildings and improvements and the making of a gift to ACO.

OPINIONS

Provided that

1) the proposed amendments to sections 110.1 and 118.1 and proposed subsections 248(30) to (33) of the Act are enacted in substantially the same manner as proposed in the Draft Legislation,

2) the FMV of the Land subject to the Easement and the farm buildings and improvements at the time the Purchaser makes payment to ACO in satisfaction of a Qualifying Offer is an amount equal to the Appraised Value, and

3) the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions,

our opinions are as follows:

A. The Appraised Value will be the amount of the advantage for purposes of proposed subsection 248(31) of the Act ("Advantage").

B. The Excess Amount referred to in 10 above will be an eligible amount of a gift for purposes of proposed subsection 248(30) of the Act ("Eligible Amount").

C. Where the Purchaser is an individual, the Purchaser will be entitled to include the Eligible Amount in calculating the Purchaser's "total charitable gifts" pursuant to the proposed amendment to subsection 118.1(1) of the Act, provided an official receipt containing information referred to in 11 above is filed as required by the proposed amendment to subsection 118.1(2) of the Act.

D. Where the Purchaser is a corporation, the Purchaser will be entitled to include the Eligible Amount in calculating the total of all eligible amounts for purposes of the proposed amendment to paragraph 110.1(1)(a) of the Act, provided an official receipt containing information referred to in 11 above is filed as required by the proposed amendment to subsection 110.1(2) of the Act.

COMMENTS

Nothing in this letter should be construed as implying that the CCRA has agreed to or accepted the fair market value of any property referred to herein.

We trust that our comments will be of assistance to you.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch