ecological gifts program - oltaolta.ca/wp...gifts-program-the-ontario-perspective.pdfpage 4 -...

ECOLOGICAL GIFTS PROGRAM

Laura Kucey, Environment Canada David Babineau, Appraisal Review Panel Chair

OLTA GATHERING – OCTOBER 2015

- October 2015

INTRODUCTIONS AND OVERVIEW • Ontario EGP staff changes

• Presentation Overview – Program goals – Ontario gift specifics – Program process overview

▪ focus on common questions ▪ Appraisal Review Panel

– Open Q&A – Audience choice of topics:

▪ Conservation Easement Agreements ▪ Change in Use / Disposition requests ▪ Ownership ▪ Split receipting

- October 2015

DISCLAIMER

Not providing advice…. Simplified information for educational purposes

EVERY SITUATION AND EACH PROPOSED GIFT IS UNIQUE!

• Tax questions? Call your financial planner.

• Accounting questions? Call your accountant.

• Legal Questions? Call your lawyer.

- October 2015

ECOLOGICAL GIFTS PROGRAM (EGP)

Federal program made possible by the Income Tax Act

Administered by Environment Canada in cooperation with many partners

As of October 1, 2015:

1184 Ecological Gifts valued at over $741 million have been donated across Canada, protecting over 171,110 hectares

Of these, 477 gifts valued at over $160 million were donated in Ontario

Landowners with ecologically sensitive land

Qualified Recipients

- significant tax benefits - contribute to the protection of

biodiversity

- ensure that the land’s biodiversity and environmental heritage are

conserved

- October 2015

ONTARIO NUMBERS

• Current files: – 47 open files – 21 different recipients – About a 65 / 35% split on fee

simple vs. conservation easements – A few on hold – 19+ additional proposed gifts that

recipients have mentioned will be coming to the program soon

To date, 13 gifts have been

completed in Ontario (SFMV issued) in 2015

- October 2015

- October 2015

WHAT CONSTITUTES A GIFT?

• Donation must fully qualify as a gift under Canadian tax law: – donor transfers ownership of /interest in property to a qualified recipient – the transfer is voluntary – no benefit is provided to the donor (or person selected by the donor)

• Question about whether the donation qualifies as a gift for tax purposes? – Contact tax and legal advisors! – Advance ruling possible from CRA

(donor/recipient responsibility)

• EGP does not assess whether the donation qualifies as a gift under the Income Tax Act

- October 2015

TAX INCENTIVES

• For most gifts the taxable portion is 50% of the capital gain, BUT this is reduced to 0 for certified Ecological Gifts

• Non-refundable tax credit for individuals

• Tax deduction for corporate donors

• Any unused portion of the donation can be carried forward for 10 years (applies to gifts made on or after Feb 11, 2014)

- October 2015

RECIPIENTS

• Currently more than 150 eligible recipients across Canada – Environmental charities approved by the federal Minister of the

Environment (land and heritage trusts, nature conservation groups)

– federal, provincial, territorial and municipal governments

• Responsible for maintaining the biodiversity and environmental heritage values of the property

– May also help with initial assessment of the property's ecological sensitivity, arranging for an appraisal, and coordinating the necessary applications

- October 2015

EGP STRUCTURE

Québec Regional

Coordinator

(Québec City)

Atlantic Regional

Coordinator

(Sackville)

PNR Regional

Coordinators

(Winnipeg and Edmonton)

Ontario Regional

Coordinators

(Toronto)

PYR Regional

Coordinator

(Vancouver)

EGP National Secretariat

(EC Ottawa)

Independent Appraisal Review Panel

(across Canada)

Donors and Recipients

- October 2015

PROGRAM PROCESS

• Number of steps – arranging the donation – preparing information on ecological sensitivity and property appraisal – appraisal review and determination of the fair market value of the

donation

• Donor will receive: – Certificate of Ecologically Sensitive Land – Statement of Fair Market Value – Official donation receipt from the recipient

All three must be included with donor’s income tax return

- October 2015

PROGRAM TIMING

• It can take several months to arrange a donation • Up to six months or longer to work through the certifications

PROGRAM TIMING IS DEPENDENT ON FULL AND COMPLETE SUBMISSIONS TO THE EGP

• Donors are advised to apply to the Ecological Gifts Program as early in the year as possible if they wish to use their ecological gift tax benefits that same year

Regional Coordinators are available to help throughout the Ecological Gifts Program process

- October 2015

Ecological Sensitivity Submission Ecological Sensitivity Review

Appraisal & Application Submission

Notice signed and returned to EC

Land Transfer / Closing documents submitted to EC

Regional Appraisal Review

Appraisal Review Panel Review and Recommendation

Complete File Review

less than 3 weeks

2 weeks

within 90 days

2 weeks

Donor / Recipient steps Timelines self dependent

Environment Canada steps Estimated timelines IF FULL AND COMPLETE

SUBMISSIONS ARE RECEIVED

SIMPLIFIED EGP PROCESS AND TIMING

Notice of Determination

issued

Certificate of Ecological Sensitivity issued

National Secretariat Appraisal Review

Statement of Fair Market Value issued

- October 2015

Ecological Sensitivity Submission should include:

1. Donor indication of intent

2. Recipient indication of acceptance

3. Current Title Abstract

4. Ecological Sensitivity Application - Donation type / area - Assessment of ecological

character - How EGP criteria is met If applicable: 5. Conservation Easement

6. Designated signing authority

Ecological Sensitivity Review less than 3 weeks




Certificate of Ecological Sensitivity

issued

ECOLOGICAL SENSITIVITY

Regional Coordinator: • opens a file • reviews and substantiates ecological sensitivity

submission against national and provincial criteria • prepares Certificate for delegated signing

- October 2015

- October 2015








less than 3 weeks

2 weeks

within 90 days

2 weeks





issued




- October 2015

Appraisal AND Application Submission should include:

• Independent appraisal of the fair market value of the proposed donation conforming to EGP guidelines

• This Application demonstrates that the donor is aware and agrees with the appraised value of the proposed donation

ALL ASPECTS OF THE APPRAISAL AND APPLICATION MUST MATCH


• For completeness, accuracy and compliance

2 weeks

within 90 days





issued


• Following a recommendation from the ARP, the federal Minister of the Environment certifies the fair market value of the donation

• If ARP requires more information, a memo will be issued and timelines go on hold

INDEPENDENT Appraisal Review Panel

Review and Recommendation

APPRAISAL REVIEW

NOTICE OF DETERMINATION

- October 2015

- October 2015








less than 3 weeks

2 weeks

within 90 days

2 weeks




SIMPLIFIED EGP PROCESS AND TIMING


issued




- October 2015



• Final title abstract showing that the donation has occurred

• Including FINAL, SIGNED, REGISTERED conservation easement, if applicable


2 weeks






Three options for the donor:

1. Accept fair market value as determined, notify Environment Canada in writing, and complete the donation process

2. Request a redetermination within 90 days

3. Withdraw from EGP

NOTICE OF DETERMINATION

STATEMENT OF FAIR MARKET VALUE

• The value on the Statement should appear on the donation receipt issued by the recipient

- October 2015

SAFEGUARDS FOR ECOLOGICAL GIFTS

Under the provisions of the Income Tax Act s.207.31

Recipients are responsible for the long term

conservation of the donation

Unauthorized changes in use or dispositions of ecological gifts

could result in a tax of 50% of the land’s current

market value

- October 2015

Appraisal Review Panel

• What is the Appraisal Review Panel, or ARP? The ARP is an independent advisory body of experts

who have the responsibility to review appraisal reports and make recommendations to the federal Minister of the Environment on the fair market value of ecological gifts made under the Income Tax Act.

- October 2015

Appraisal Review Panel Composition

• Who sits on the Appraisal Review Panel? At present, the Appraisal Review Panel is comprised of

five permanent appraisal experts and a legal policy specialist. Each of the five permanent appraisal experts represent one of the five Environment Canada regions. In addition, there are six Ad-hoc appraisal experts (two in Ontario), who are engaged on an occasional basis, to ensure our service is delivered in the most expedient manner.

- October 2015

Appraisal Review Panel Process

• What process does the Appraisal Review Panel employ? The Appraisal Review Panel examines each appraisal

report submitted in the light of the Guidelines for Appraisals and the relevant appraisal standards that are in effect. In the case of members of the Appraisal Institute of Canada, the relevant standards would be the Canadian Uniform Standards of Professional Appraisal Practice. Emphasis is on the substantive contents of the appraisal report, rather than on its format or style.

- October 2015

ARP – Areas of Concerns

• What are some of the common areas of concerns that the Appraisal Review Panel encounters?

The use of unsupported assumptions – As stated in the

Guidelines for Appraisals, no unsupported assumptions will be permitted in the preparation of appraisals, including unsupported assumptions that have an impact on highest and best use. For example, a waterfront property can be valued to reflect a marina development, if that is the highest and best use, but the use cannot simply be assumed to be the highest and best use.

- October 2015

ARP – Areas of Concerns (cont.)

The use of hypothetical conditions, except when they are necessary for a reasonable analysis of the property. For example, an appraiser may include a hypothetical condition in an appraisal of an ecological gift where the hypothetical condition is necessary to value a proposed ecological gift comprised of a new lot that is not yet subdivided from a parent parcel or a conservation easement that is not yet registered. The inclusion of unsubstantiated opinions and

unsupported conclusions. This is a contravention of the Canadian Uniform Standards of Professional Appraisal Practice and the Guidelines for Appraisals.

- October 2015

ARP – Areas of Concerns (cont.)

Timing of appraisals and the update process. In accordance with the Guidelines for Appraisals, the effective date of an appraisal must be no earlier than six months before the date that the donor submits the Application for Appraisal Review and Determination. If the effective date of the appraisal is more than six months before the application is submitted, the appraiser who completed the original appraisal must verify in writing that there has been:

• no material change in the use of the property, and • no material change to the market in the area of the

subject property

- October 2015

ARP – How you can help us help you

Provide the appraiser you engage with the most complete package of information you can. This could include leads on any comparable sales data. When the Appraisal Review Panel needs clarification

about an appraisal report, they will either contact the appraiser directly (if permission to do so has been granted) or issue a memorandum to the Donor for distribution to the appraiser. Please explain this part of the process to the appraisers you engage and encourage them to be as co-operative with the ARP as possible. Their prompt response to any queries will make the entire process more expedient.

- October 2015

ARP – New Developments

The Guidelines for Appraisals are in the process of being redeveloped and they will include an expanded explanation of what is required in the update process and an ‘appraisal checklist’. Thank you.

- October 2015

HELPFUL HINTS

• All parties should obtain independent legal and financial advice

• Make sure the appraiser has all of the right information! • Find out as much information as you can about:

– the property

– EGP – CALL US! • Pay attention to the application you are filling in

– Details are important when you are working under the ITA! • EGP publications are available online and through your

EGP coordinator

- October 2015

RESOURCES

Environment Canada: • Confirmation that Ecogifts are Eligible for Split-Receipting • Application for Appraisal Review and Determination of the Fair

Market Value of an Ecological Gift: http://www.ec.gc.ca/pde-egp/default.asp?lang=En&n=23F53F80-1

Canada Revenue Agency (CRA):1-800-267-2384 • Gifts and Income Tax - website • Gifts and Official Donation Receipt , IT-110R3 • Proposed Guidelines on Split-Receipting, Income Tax Technicial

News No. 26

http://www.ec.gc.ca/pde-egp/default.asp?lang=En&n=12345678-1&xsl=mainhomeitem&xml=5BE8344D-C572-4D32-BC42-D6E6E9DDFC03

http://www.ec.gc.ca/pde-egp/default.asp?lang=En&n=23F53F80-1

http://www.ec.gc.ca/pde-egp/default.asp?lang=En&n=23F53F80-1

http://www.cra-arc.gc.ca/E/pub/tg/p113/p113-e.html

http://www.cra-arc.gc.ca/E/pub/tp/it110r3/it110r3-e.html

http://www.cra-arc.gc.ca/E/pub/tp/itnews-26/

http://www.cra-arc.gc.ca/E/pub/tp/itnews-26/

- October 2015

NEXT PORTION OF THE PRESENTATION… CHOOSE YOUR OWN ADVENTURE

1ST: Questions so far?

We likely can’t cover all of the items listed below, so

2ND: Which of the following topics would you most like to discuss:

1. Conservation Easement Agreements 2. Change in Use / Disposition requests 3. Ownership

– estate, multiple donors, multiple properties, US owners

4. Split-receipting

- October 2015

COMMON CONSERVATION EASEMENT DEFICIENCIES

• Using a boiler plate type of easement for unique lands – All conservation easement donations should be tailored to lands and the

donors needs – Conservation easement that does not protect sensitive features – Intent doesn’t match the ecological sensitivity criteria submitted

• Features (trails, etc.) or zones (agricultural, protected, residential) are not indicated on the maps

• Incomplete or poor quality submission • Not submitting final, or near final, easement with appraisal • Making changes to conservation easement after the appraisal

– this results in serious delays as the conservation easement MUST re-route back through the EGP and the Panel for review

• Not submitting baseline documentation

- October 2015

STRENGTHENING CONSERVATION EASEMENTS

• The better the mapping now, the easier to interpret later

• Consideration of specific ecological features within the easement

• Spending time discussing the ‘intent’ of the easement

• Consideration of future invasive and non-native species (protection of the ecologically sensitive features)

• Referencing requirements for Environment Canada authorization of any change in use / disposition under the Income Tax Act and Ontario Ministry of Natural Resources and Forestry under the Conservation Land Act, 1990

- October 2015

DISPOSITION OR CHANGE IN USE

• To seek authorization, recipients should write to the Ecological Gifts Program office in their region in advance of making any dispositions or changes in land use EGP fact sheet: Disposition or Change in Use of Ecological Gifts Questions?

Call your EGP Coordinator!

- October 2015

CHANGE IN USE / DISPOSITION REQUEST

• Each request for authorization of a proposed change in use (CIU) or disposition (DISP) of an ecological gift is unique and is considered on its own merit

• Environment Canada takes the following into account when evaluating a request for authorization:

– Spirit and intent of the original donation

– Will CIU/DISP result in protection that is at least equal to that provided under the existing arrangement?

– Is the CIU/DISP request beneficial to the long term conservation and management of the ecological sensitive features on the subject lands?

– Is the new recipient (of DISP) eligible to receive an ecological gift?

– What factors are driving the CIU/DISP request? ▪ Is the CIU/DISP within the control of the recipient?

- October 2015

HOW TO SUBMIT YOUR CIU / DISP REQUEST…

• Send your letter of request to your regional EGP coordinator – Formal letter of request addressed to the Regional Director – Include maps, supporting documentation – Discussions with the EGP coordinator can help clarify the details that should be

included in the letter

• Environment Canada will only consider written requests that provide clear details with the precise nature of the proposed CIU/DISP

• Provide rationale for your request – Make your case and justify your rationale!

• Provide a full assessment of the potential effects of the proposed CIU/DISP on the ecologically sensitive features of the lands

– Include details of proposed activities to be undertaken and any potential restoration work

- October 2015

AUTHORIZING A REQUEST

Authorization of your request – Authorization will come in the form of a letter from the Minister’s delegated

authority (Regional Director, Ontario) – Submit proof of completed authorized actions to the EGP – Gift file will be updated to reflect the changes – Included CIU/DISP details in future recipient surveys

What if my request is rejected?

– Rational for rejection will be included in the Ministerial letter – Contact your regional coordinator if you have questions – Yes, you can resubmit, but your request must be different than the

originally rejected request

- October 2015

CIU / DISP QUESTIONS

• Can we add trails to the property at a later point in time? • We are working with an older easement that doesn’t allow us

to remove vegetation or use herbicides. How can we get rid of dog-strangling vine?

• How can recipients incorporate the potential future uses on a property (such as wetland management/restoration activities)?

• What happens if the lands are severed from the parent parcel at donation

• The new landowners, not the original donors, want to change some restrictions in the conservation easement, is this allowed?

- October 2015

EXPROPRIATION QUESTIONS

• Who can help when a property is faced with potential expropriation?

Responsibilities and Authorities under the EGP

• Under the ITA, the Minister of the Environment (EC), or a designate: – Certifies the ecological sensitivity of the land (or partial interest) – Approves the recipient to receive the Ecological Gift. – Determines the fair market value of the donation.

• Recipients of Ecological Gifts are responsible for:

– protecting and maintaining the biodiversity and environmental heritage values of the property

– the long-term management and conservation of the Ecological Gift and its ecologically sensitive features

- October 2015

EXPROPRIATION QUESTIONS

• In certain situations, a disposition or change in use will be outside of the recipient’s control - Expropriation is an example of this

• Expropriation is one of the most powerful exercises of a public authority’s power

• EGP staff will examine a range of factors, including details relating to the expropriating authority, land impacted, and stage of the expropriating activities in relation to Ecological Gifts

• Recipients are expected to do everything within their powers to work with parties to minimize potential impact to ecologically sensitive features of Ecological Gifts

• Environment Canada will work with its partners and stakeholders to communicate the importance of conserving nature and leaving a legacy for future generations

• EC staff can assist and participate in discussions with recipients and expropriating parties

- October 2015

OWNERSHIP – Q&A

• Can a corporation give a an Ecological Gift? – Yes, however every situation is unique – Consult the Canadian Revenue Agencies Charity Directorate for the definition of a gift – All EGP documentation is issued to the corporation (legal owner on title) – EGP also requires legal documentation identifying signing authority – Only very specific beneficiary trusts allow for inclusion of beneficiaries on

issued documents

• Considerations: – Like private donors, corporate donors should independently verify that their

donation qualifies as a gift under the Income Tax Act – Donations made as a condition of development are not gifts – Donations of inventory lands may qualify as ecological gifts, but they

are not eligible for the capital gains exemption

- October 2015

Can an Estate give an Ecological Gift? – Yes – Please provide legal documentation supporting the signing authority for

the gift (often provided via a letter from the Estate’s solicitor) – Make sure documents MATCH the legal donor on title – If donor is recently deceased, please provide legal documentation

identifying death AND legal signing authority (such as a notarized will)

How does a trustee relationship work? Who do I work with? – Similar to an estate donation, a name may be on title that does not match

the name of the person you are working with but the donor states they are a trustee

– Trustee relationships must be supported by legal, formal documentation (often a notarized trustee document).

Always ensure you are working with the legal owner – or legal designate

OWNERSHIP – Q&A

- October 2015

TITLE ABSTRACT VS. TITLE DEED

What’s the difference between an abstract and a deed and what is more important for my Ecological Gift submission? TITLE DEED

– legal documents outlining one transaction occurring on title – evidence of transfer from donor to recipient

TITLE ABSTRACTS

– outline all transactions on title, in chronological order, i.e. title history – shows the legal donor(s) AND any liens and/or encumbrances

An up to date title abstract (parcel register) is required for EVERY Ecological Gift application

- October 2015

Why do you need title abstract documents at the beginning and end of the process?

– The title abstract / parcel register

identifies all legal donors, provides a history of the parcel (any encumbrances) as well as verifying that the donation transaction has occurred according to the original submission

OWNERSHIP – Q&A

- October 2015

Only one of the legal donors is donating, the other is receiving cash, why do you issue documents to BOTH legal owners on title?

– Environment Canada is obligated to issue identical legal documentation to all parties listed on title

– The details of how the transaction transpires (i.e. recipient receipting) is up to the donor and recipient

Example, Gift ON888: – Two legal donors (two landowners listed on title), Environment Canada will

issue documents to donors A and B, even if only Donor A is technically making a donation

– Appraised value is for the entire property and title documents – this is the proposed donation

– Both donors are on title, but only Donor A will be able to use the documents as they are the donor with the charitable receipt

– Donor A will file documents related to ON888A – Donor B will keep or destroy their documents – Ensures all legal owners are aware lands are going through the EGP

OWNERSHIP – Q&A

- October 2015

TITLE ABSTRACT—BEFORE GIFT

- October 2015

AFTER A CONSERVATION EASEMENT…

- October 2015

- October 2015

US OWNERSHIP

What if a donor is a US citizen, or a CDN living in the US? Can they still give an Ecological Gift?

– Short answer: YES!

– Long answer: different tax advantages will be realized by the donor based on whether or not the donor(s) pay Canadian income tax

– Even longer answer: American Friends of Canadian Land Trusts (AFCLT) has been established and has growing in experience when it comes to promoting conservation without borders

Unfortunately, AFCLT is not an eligible recipient and presently gifts donated (100%) to AFCLT cannot be considered an Ecological Gift

▪ There are options of having both a Canadian land trust and AFCLT hold title; however, this leaves the Canadian land trust with the responsibilities under section 207.31 (of the ITA)

▪ EGP-ON has a couple of gifts that have gone through the process

- October 2015

EGP RECIPIENT AND AFCLT EXAMPLES • What they wanted to do:

– Conserve islands while maximizing donor financial benefit – 4/8 of the donors, holding 40% of the interest are Americans paying

only US income tax – 4/8 of the donors, holding 60% of the interest are Canadian and pay

CDN income tax – Donors wanted to participate in the EGP

• Considerations:

– The second recipient holding the lands is NOT an eligible EGP recipient as they are not recognized as a CDN Charity by CRA

– Recipient organized the transaction between all parties, everything in writing, including interests in land

– Donors investigated interests and benefits*

- October 2015

Name Share American/Canadian Mr. B 1/5 20% Canadian Ms. G 1/5 20% American Mr. M 1/5 20% Canadian Mr. S 1/15 6.67% American Mr. Sp 1/15 6.67% American Ms. S 1/15 6.67% American Mr. G Ms. G

1/10 10% 1/10 10%

Canadian Canadian

OWNERSHIP DETAILS

– 4/8 interested in participating in the EGP – 60% Canadian

- October 2015

ENVIRONMENT CANADA

• Verified ownership and interests • Completed EGP submission review • Property management and long-term conservation plan reviewed

and identified timelines for land transfer • Non-benefitting owners were removed from Ministerial Certificates,

and Statements • Entire property was appraised and reviewed • Full Fair Market Value considered, recipients/donor/lawyer to verify

and issue their documents as per designated interest

For more information: American Friends of Canadian Land Trusts www.afoclt.org

http://www.afoclt.org/

- October 2015

SPLIT RECEIPTING • Situation where a recipient can issue a tax

receipt to a donor for an eligible amount of a gift, namely the difference in the total value of the gift and the value of any consideration that the donor received in return for the gift

• How does it work? – Gift is appraised and certified (FMV $500K) – Donor transfers land to recipient – Recipient gives donor $350K in cash and $150K

in the form of a charitable receipt – Environment Canada issues a Statement of Fair

Market Value for $500K (the full value of the gift) which is accompanied by the charitable receipt at tax filing time

– A split receipt donation looks the same on title as a fee simple donation

- October 2015

THINK OF IT LIKE THIS…..

• Example: FMV Gift is 500K**

• Total advantage back: 350K

– paid by land trust to the donor

• Total value of the “gift”: 150K – supported by a charitable receipt – donor uses charitable receipt + SFMV + Certificate to claim Ecological Gift tax benefits

**example above is overly simplified…

- October 2015

EGP EVOLUTION

• Program launched in 1995 as a result of amendments to the Income Tax Act (ITA) of Canada

• In 2000, the Program implemented a rigorous and accountable process for determining the fair market value of Ecological Gifts

• In 2003, split-receipting was permitted and in 2006, taxable capital gains on Ecological Gifts were eliminated

• In 2007, recipient certification processes were enhanced • 2013 updates to ITA and split receipting formally adopted into

the Act • 2014 Any unused portion of the donation can be carried

forward for 10 years (applies to gifts made on or after Feb 11, 2014)

- October 2015

REGIONAL CONTACT

Laura Kucey Environment Canada 4905 Dufferin Street

Toronto, ON M3H 5T4

416-739-4362

[email protected] BUT changing to

[email protected]

mailto:[email protected]

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