It is important to keep in mind that there may be potential negative tax implications that can often be avoided with some careful planning.
Capital Gains Taxes
Capital gains taxes will apply to conservation easements held in perpetuity, but these can be mitigated through the provisions applicable to donations and the augmented tax benefits available through the Ecological Gifts Program.
Real property is generally subject to a potential capital gain at the time it is disposed of; in other words, an increase in value from the time it was acquired to when it was sold, willed, gifted or otherwise disposed of. That “gain” in value is taxable.
Most people are surprised to find out that even a donation is subject to capital gains taxes, which are generally more than offset by the tax receipt, but still vexing. For a normal donation, the taxes payable on the capital gain are 50% of what they would be in a non-donative disposition (i.e., if the donation does not qualify as a gift). The good news is that certifying the donation as an Ecological Gift means no portion of the capital gain is taxable.
Property Taxes
Virtually all privately held parcels of land in Saskatchewan are subject to municipal property tax calculated using the ad valorem basis of taxation. In this process, your property’s value is assessed (usually by the Saskatchewan Assessment Management Agency) and a provincially established percentage is applied to this value to determine a “taxable assessment”, which is then multiplied by a municipal “mill rate” to produce the property tax. The municipal tax rate (a.k.a. mill rate) is calculated by dividing the amount of taxation revenue the municipality requires by the total taxable assessment, and multiplying that number by 1,000. Assessed land values vary with land use (i.e., agricultural, residential) and ownership (i.e., private, commercial).
Within guidelines set out by the province, some municipalities may set their taxation rates and modify their land value assessment process. Each municipality will approach this process differently, and assessments and taxation rates will vary between municipalities. Because the tax you pay is a function of the assessment and taxation rate (or mill rate), relief in either one can be significant.
For the purposes of parcels that might be subject to a conservation easement, there are essentially two assessment categories: “fair market value” and “agricultural.” “Fair market value” is essentially the price the property would fetch on an open market for its most economically advantageous use (“highest and best use”).
“Agricultural” value recognizes that agricultural parcels may have an inflated value based on their potential for more intensive development, but would garner a much lower price based purely on their agricultural-based economic productivity.
When it comes to property taxation of conservation lands – that is, lands either subject to a conservation easement or held by a conservation organization – the province has left property taxation rates up to the individual municipality.
Landowners and qualified organizations working together on a given conservation easement will need to check with the local municipality to know how conservation lands in that area are taxed by the municipality.
