What is ecologically sensitive land?
Recognizing that habitat loss and degradation are the greatest threats to biodiversity in Canada and that many key habitats are on private land, the Canadian Ecological Gifts (EcoGifts) Program was established by the federal government to provide incentive and recognition for landowners who protect their ecologically sensitive land. By participating in the program managed by Environment Canada, landowners who donate title or a conservation easement on ecologically sensitive land to a “qualified recipient” are eligible for special tax benefits. Application to the program can be made while a conservation easement is being granted on a property, but a landowner can apply within three years after the tax year in which they have granted a conservation easement. Applying after the grant of the conservation easement has some risk as the federal government may not certify the land and this may result in a change in the tax receipt that was previously issued.
For landowners to be able to claim the benefits of the EcoGifts Program they must apply and the federal Minister of Environment must:
- certify the property as ecologically sensitive land;
- confirm that the ecological gift (conservation easement or land) is made to an eligible recipient; and
- certify the fair market value of the property.
Successful completion of these steps provides the landowner with the documents necessary to claim income tax reductions and benefits over and above a regular gift.
Broadly, ecologically sensitive lands are areas that significantly contribute to conserving Canada’s biodiversity and environmental heritage. There are national criteria that apply to identification of these lands and some provinces have developed additional criteria; however, Alberta has not developed additional criteria. National criteria for ecologically sensitive land include:
- areas identified, designated or protected under a recognized classification system;
- natural spaces that are significant to the environment in which they are located;
- sites that have significant current ecological value or potential for enhanced ecological value as a result of their proximity to other significant properties;
- private lands that are zoned by municipal or regional authorities for the purpose of conservation;
- natural buffers around environmentally sensitive areas such as water bodies, streams or wetlands; and
- areas or sites that contribute to the maintenance of biodiversity or Canada’s environmental heritage.
The definition provided by the EcoGifts Program is fairly broad but most definitely targeted at land to be protected for ecological purposes. There are EcoGift conservation easements in Canada that include a portion of land that is in agricultural production. These parcels of land also have an ecologically sensitive feature that is linked to the agricultural piece by being on the same land title. There are other circumstances where land has not been accepted into the program when the entire property or a portion of the land associated to the land title is cultivated or in hayland. There is some limited potential to apply the EcoGift program to land that is encumbered with a conservation easement for agricultural purposes if the land also has appropriate ecological features. It is a good idea to request a visit by the EcoGift’s Regional Coordinator during the conservation easement process to get an opinion about the property.
Steps in the EcoGift Program process
Who is a qualified recipient?
“Qualified recipients” of ecological gifts under the EcoGifts Program are quite similar to “qualified organizations” that can hold conservation easements under the Alberta Land Stewardship Act. In both instances, the interest in land can be held by charities or government bodies. The key difference is that the EcoGifts Program requires charities wishing to receive and hold ecological gifts to apply to Environment Canada for eligibility. Environment Canada maintains an online list of eligible charities. Charities simply wishing to hold conservation easements in Alberta need only meet the legislated criteria; no government application or approval is required. There are also subtle differences between Alberta’s legislation and the EcoGifts Program in relation to the purposes or objects of eligible charities.
Under the EcoGifts Program, federal, provincial and municipal governments and bodies carrying out a government function are automatically eligible to receive ecological gifts.
|Alberta Land Stewardship Act||Canadian Ecological Gifts Program|
|Registered charity under Income Tax Act||Registered charity under Income Tax Act|
|No application; charity must simply meet requirements of the Act||Charity must meet criteria of program and apply to Environment Canada for declaration of eligibility|
Charity’s objects must include acquiring and holding interests in land for any of protection, conservation and enhancement of:
Charity’s objects must include:
- “conservation and protection of Canada’s environmental heritage” or similar wordingrnrn- “acquisition and management of real estate for conservation purposes” or similar wording
Founding documents must provide for transfer of all conservation easements to another qualified organization if charity is wound up
|Under the EcoGifts Program, federal, provincial and municipal governments and bodies carrying out a government function are automatically eligible to receive ecological gifts.|
What are the tax implications of the an EcoGift?
Under the federal Income Tax Act, income tax benefits are available for both individuals and corporations that make a gift of ecologically sensitive land, either through a donation of title or an interest in the land by a conservation easement. Tax benefits include:
- the value of an individual’s ecological gift is calculated as a non-refundable tax credit that can be applied against income;
- corporations can deduct the value of their ecological gift directly from their taxable income;
- in most provinces, a reduction in federal income tax payable will also reduce provincial income tax;
- a reduction in the taxable capital gain arising on disposition of the property. For most gifts, 50% of the capital gain is taxable, but no tax is assessed against the capital gain for an ecological gift;
- there is no limit to the total value of the ecological gift eligible for deduction or credit in a given year (in contrast to a regular gift where the claimed amount is limited to 75% of your net income.); and
- a ten-year carry-forward period is allowed for claiming the donation of an ecological gift as compared to 5 years for other charitable gifts.
It is important to recognize that only “gifts” are eligible for these benefits under the EcoGift Program. This means that any conservation easement provided in exchange for something is not considered to be a gift given freely and without consideration. For example, conservation easements provided to secure special development considerations from a municipality or provided to a land trust in exchange for grazing rights on another property would not be considered “gifts” and would not be eligible for these tax benefits. In addition, conservation easements are only eligible if they are given “in perpetuity” (permanently); limited term conservation easements are not eligible for the EcoGift Program.
The tax benefits that result from the EcoGift Program are determined based on the fair market value of the gift of ecologically sensitive land, as certified by the federal Minister of Environment. The landowner and/or qualified organization must provide an appraisal of the conservation easement property to Environment Canada for determination of the fair market value, along with the required application form, completed by the landowner.
The appraisal must conform to the Canadian Uniform Standards of Professional Appraisal Practice and all Environment Canada requirements. The appraiser must be provided with the most recent version of the conservation easement agreement when carrying out the appraisal. If the agreement changes after the appraisal is completed, the changes must be given to the appraiser to determine whether the changes to the agreement with influence a change in the property valuation. The appraisal should ideally be effective for a date as close as possible to the application for appraisal review.
When Environment Canada receives an appraisal, it is reviewed by the Appraisal Review Panel, which is made up of one or more qualified professionals. The panel’s review determines whether the appraisal meets Environment Canada guidelines and develops a recommendation to the Minister of Environment regarding the fair market value of the property. The Minister of Environment determines the fair market value and issues a Notice of Determination of Fair Market Value of an Ecological Gift to the landowner. Upon receiving the Notice, the landowner must choose one of three options:
- accept the determination of fair market value by returning the Notice to the EcoGifts Program regional coordinator;
- file a written request for redetermination of the fair market value by a committee of the Appraisal Review Panel; or
- withdraw the application.
Once the landowner has accepted the determination of fair market value, they can complete the EcoGifts process by providing the program with evidence of registration of the conservation easement against the land title of the property. When the entire EcoGift process has been completed, the landowner will have received the following documents:
- a Certificate of Ecologically Sensitive Land, Recipient Identification and Registered Charity Approval from Environment Canada;
- a Statement of Fair Market Value of an Ecological Gift from Environment Canada; and
- an official donation receipt from the qualified organization.
The landowner must include all of these documents with their income tax return when claiming the tax benefits from their ecological gift.
Effects of changes to ecologically sensitive property – tax clawbacks
The EcoGifts Program emphasizes permanent protection of ecologically sensitive lands and the responsibility of the qualified recipients (qualified organizations) for long-term management and conservation. To ensure this permanent protection, where properties have been certified under the EcoGifts Program, qualified recipients must apply for prior written authorization from the federal Minister of Environment for changes in use and dispositions of the property. Failure to obtain this authorization makes the qualified recipient subject to a tax of 50% of the fair market value of the property at the time of the unauthorized change in use or disposition.
Environment Canada considers a disposition to be any change to title that transfers property, whether through sale or gift, either wholly or in part, including the transfer or assignment of a conservation easement. Changes in use can include the qualified recipient.
- taking or allowing any action that lessens or could lessen the property’s ecological condition;
- changing any terms of the conservation easement agreement; or
- failing to enforce the terms of the conservation easement agreement, which results or could result in changes to the property’s ecological condition.
Generally, only changes or dispositions that don’t negatively impact the property’s ecological condition will be authorized. As such, it is crucial that any changes to conservation easements on properties under the EcoGift Program be undertaken carefully and with prior authorization from Environment Canada.