Principal Issues: (1) Whether grant of conservation easement constitutes disposition of taxable Canadian property by non-resident?
(2) Whether a capital gain will arise if the conservation easement is given for perpetuity to a United States charity other than the Nature Conservancy?
(3) Whether a capital gain will arise if the gift of the conservation easement is described in the definition "total ecological gifts"?
Position: (1) It depends on the agreement between the grantor and the holder.
(2) It depends on whether or not subsection 110.1(3) of the Act (where the donor is a corporation) or subsection 118.1(6) of the Act (where the donor is an individual) applies. Where the US charity is not The Nature Conservancy, these subsections will not apply if the US charity is not a charitable organization outside Canada to which Her Majesty in right of Canada has made a gift during the donor's taxation year or the 12 months immediately preceding that taxation year.
(3) Subsection 110.1(5) of the Act (where the donor is a corporation) or subsection 118.1(12) of the Act (where the donor is an individual) will apply to determine the fair market value. If the gift is described in the definition "total ecological gifts", subsection 110.1(3) of the Act or subsection 118.1(6) of the Act will apply. The taxable capital gain will be 1/4 of the donor's capital gain, if any.
Reasons: (1) Terms of agreement will have to be reviewed
(2) and (3) If subsection 110.1(3) of the Act or subsection 118.1(6) of the Act applies to a particular situation, the donor designates an amount not greater than the fair market value and not less than the adjusted cost base as proceeds of disposition and as the fair market value of the gift. If subsection 110.1(3) of the Act or subsection 118.1(6) does not apply, the proceeds of disposition is equal to the fair market value pursuant to subparagraph 69(1)(b)(ii) of the Act.
