The world of taxation on income and property can be complex, and can vary depending on location and circumstances. It is important to consult your tax advisor about the specific implications of a conservation easement for you.
In the meantime, here are a few potential issues to be on the lookout for:
Only gifts can get tax receipts – A conservation easement given in exchange for something (development considerations, other land use options, etc.) is not considered a gift and is not eligible for a tax receipt.
Capital gains – Capital gains, and the taxes payable on them, accrue on property no matter what. Any permanent disposition of land – even a donation – will trigger a capital gains calculation. That capital gains tax is waived if your donation is certified under the EcoGifts program, but 50% of the gain is taxable if it is a charitable donation that does not qualify as an EcoGift’. Fixed term conservation easements do not accrue capital gains taxes. Conservation easements on agricultural land may be eligible for the EcoGifts program providing that they are native grasslands that contain significant conservation value or biodiversity. Your gift would be eligible for the regular charitable tax receipt, but it would not receive the additional beneficial tax treatment available under the EcoGifts program.
Municipalities determine property tax relief – Municipalities typically have two property tax categories: fair market value and agricultural. Some municipalities will waive the property tax on a conservation property, some will lower it to the agricultural rate, and some will provide no special considerations. You need to talk to your municipality to determine the situation in your area. Remember, if a property subject to a conservation easement is being used for agriculture, its property tax is already at the agricultural rate.
Appraisals outside of the EcoGifts program are subject to challenge by the Canada Revenue Agency. Every appraisal done to support a tax deduction can be challenged by the CRA at any point for three years. Appraisals done under the EcoGifts program are reviewed and then guaranteed by Environment and Climate Change Canada.
EcoGifts restrict changes in land use – Conservation easement legislation allows the landowner and the holder of the conservation easement to re-negotiate the conservation easement with provisions for changes in use. However, grantors and recipients of conservation easements certified under the EcoGifts program may be exposed to punitive clawback penalties for certain changes in use. Both parties should be aware of these limitations. Through dialogue with the Minister, minor changes in land use may be approved and written into the agreement, whereas un-approved changes in use may lead to penalties.
