7 July 1990 Income Tax Severed Letter - Tax treatment of gifts of restrictive covenants

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.

Dear Sirs:

Re: Gifts of Restrictive Covenants

Your letter of December 18, 1989 concerning the donation of restrictive covenants to Her Majesty or to a registered charity, has been referred to us.

As we understand it the P.E.I. Natural Areas Protection Act provides for a restrictive covenant, which is a mechanism for the legal long term or permanent protection of natural areas, ecological preserves or open spaces by private owners of those sites. A private landowner may register a restrictive covenant against his land. A restrictive covenant may be positive or negative and shall:

• (a) declare that such uses of the land as may be specified therein are forfeited;
• (b) be registered as a deed under the Registry Act R.S.P.E.I./1974, R-11;
• (c) run with the land and be binding on the landowner and his successors in title;
• (d) be enforceable by injunction to restrain any use in contravention of the covenant.

The rights forfeited generally include the right to subdivide or to develop the property for any commercial activities, and the landowner generally must maintain the land in as natural a state as possible. It would provide an incentive for land owners to protect their natural areas if a donation of the restrictive covenant, to Her Majesty or to any registered charity willing to accept the restrictive covenant, could be considered a charitable gift. The restriction of land use normally devalues the property. The restrictive covenant could therefore be assigned a value equal to the difference between the property's value before the restrictive covenant is registered against the land and the property's value after the restrictive covenant is registered against the land.

Our comments regarding your questions are as follows:

Subsection 248(1) of the Income Tax Act defines property to include a right of any kind whatever. Since a restrictive covenant registered against land is a right it would be considered a property. Consequently a donation of a restrictive covenant registered against the land to Her Majesty or to a registered charity could be considered a gift for purposes of section 118.1 or 110.1 of the Income Tax Act. XXX (a registered charity) may issue receipts respecting donated restrictive covenants providing the donation qualifies as a gift. For example if the donor were to receive services or any valuable consideration in exchange for the restrictive covenant there would be no gift for purposes of the Income Tax Act. The individual would have a disposition equal to the value of the gift. The value must be determined by a person competent and qualified to evaluate the restrictive covenant.

For your assistance we are enclosing the following Interpretation Bulletins:

IT-297R2 _ Gifts in kind to charity and others

IT-288R _ Gifts of capital property to a charity and others

IT-110R2 _ (and special release thereto) _ Deductible gifts and official donation receipts

We trust this will be of assistance to you.