19 December 1990 Internal T.I. 902947 F - Tax Implications of Purchasing Land Conservation Servitude

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.

19(1)

December 19, 1990

Dear Sirs:

Re:  Purchase of a Conservation Servitude

This is in reply to your letter dated October 16, 1990 wherein you requested a ruling with respect to the tax implications of purchasing a land conservation servitude. Specifically you inquired as to the "acceptability, from a tax point of view, of the Trust paying 60% of the assessed value of the land in question for the conservation servitude on this land".

We cannot issue a ruling as to whether or not 60% of the assessed market value of the land represents a fair price to be paid for the conservation servitude. As explained in paragraph 14 of Information Circular 70-6R2 (copy enclosed), the Department will not issue on advance income tax ruling where the matter involved is the determination of the fair market value of property (in this case the value of the servitude).

However, we offer you the following general comments concerning the transaction you have described.

The Income Tax Act (the "Act") contains rules designed to prevent tax avoidance in certain transactions between persons not dealing at arm's length. The Act also specifies that related persons are deemed not to deal with each other at arm's length. An individual would, be related to a trust if they are in a position to control the trust or if they are related to such an individual. Generally in situations involving the non arm's length transfer of property, the transferor is deemed to receive proceeds equal to its fair market value. No adjustment is made to the actual price received if it is more than fair market value. The transferee is deemed to have acquired property at a cost equal to its fair market value at the time of the transfer if he paid more than fair market value but not if he paid less than fair market value in which case no adjustment is made to the actual price paid. Provided the 24(1) is not related to a particular vendor, the negotiated ---- a conservation servitude would in most cases be the relevant amount for purposes. Where the property is a capital property to the vendor and not inventory, he or she will have disposed of a capital asset, being the conservation servitude, for proceeds equal to the negotiated price. Where a capital gain is realized on a disposition it will normally be eligible for the capital gains deduction provided that the capital gains deduction limit has not been reached.

We note from a perusal of your enclosed literature that the vendor of a servitude   24(1)  Although you letter does not suggest that the will occur in the case you have presented to us, we caution that a charitable donation receipt cannot be issued if the gift is not voluntary. If, for example, the donor was required to donated the proceeds from the sale of the servitude to the 24(1) the gift would no longer be considered voluntary and a charitable donation receipt should not be issued. For your information we have enclosed a copy of Interpretation Bulletin IT-110R which discusses this matter further.

We trust these comments will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch