Want to help fowl and forest dweller and get a tax break? Consider donating your land.
When you sell property that’s not your primary residence, a taxable capital gain is triggered, which can erode any potential profit from the sale of the land. Enter the eco-sensitive, philanthropic land donation.
According to the federal government, an eco-gift is any land donation that preserves and protects the Canadian landscape—and this can range, dramatically, from wetlands, shores and boreal forests to prairie grasslands and rocky cliffs.
But before you get too excited just know: this process can be time consuming. You’ll need to dedicate six to nine months to complete all the steps—and you may need the help of a few professionals, such as a financial adviser or lawyer, although many charities involved with this type of donation now provide help to the donor from their in-house experts.
So, it is worth it?
Yes, if you’re patient, persistent and want to avoid taxable capital gains.
For instance, if you want to sell a piece of land you bought for $5,000 a few decades ago (your intent was to build a house and retire, but you’ve decided the rural life is not for you) then you may be faced with paying tax on the appreciation of that land. Now, if that piece of land was located just outside a major metropolis that’s grown significantly over the last few decades, you may be faced with having to pay taxes on a big profit. For this example, we’ll assume that land appreciated to $100,000—you’d have to pay $23,750 in taxes! (That’s 25% on the $95,000 profit.)
Donate that land and you’ll receive a tax credit. If the land is deemed eco-sensitive you’ll receive an even bigger tax credit—typically 16% to 20% of the actual value of the donation. For the example above, that’s a credit of at least $15,200. (Also, talk to your accountant as regular charitable contribution credits may only be applied to up to 75% of your net income, but ecologically sensitive donations may be applied to 100% of your annual income.)
But remember, these tax credits can only be applied to the income you earned in the year the eco-donation was made. Also, talk to the charitable organization to determine what costs, if any, they can cover. Many of these organizations will pay all legal bills, surveys and other expenses associated with land donation. If the organization is unable to provide these services, then consider a cash donation to the charity along with the land donation. The charity can use the cash for all the professional services required to complete the donation and you get a credit for both the cash and land donation.
You can also donate the stewardship of your primary residence property, if located in an ecologically sensitive area, but be aware that your property value will probably depreciate—typically by 10%.
There are approximately 160 eligible charities listed in the federal government’s Ecological Gifts program.
Steps for Land Donations
(1) Choose a recognized charitable organization to donate land or land use.
(2) The charity, on your behalf, makes a request for an appraisal of the land to determine if it’s ecologically sensitive.
(3) Talk to the charity (and your adviser) to determine what type of donation would best suit their needs (donation of land in entirety, easement, or covenant).
(4) Pay for the appraisal, survey, land transfer, and ecological study of the land.
(5) Obtain a fair market value evaluation of the land.
(6) Consult professionals, such as lawyers, accountants, and, in some cases, realtors to draw up documents for the donation of the land.
(7) Donate the land and receives two types of charitable tax benefits:
- one for the donation of the fair market value of the land (minus any easements that may devalue the property), and
- the second as recognition for the protection of ecologically sensitive land, under the Federal Government Ecological Gifts program (instituted in 1995).