On March 22, 2017 (“Budget Day”), the Federal Government tabled the second budget (“Budget 2017”). While Budget 2017 focuses on building and supporting a strong middle class and economic growth, there are no new tax incentives for the charity and not-for-profit sector.
The most significant development to the charity and not-for-profit sector in Budget 2017 is a number of measures to protect the integrity of gifts of ecologically sensitive property (“Ecogifts”) for transactions or events occurring on or after Budget Day.
The Ecogifts program provides a way for Canadians with ecologically sensitive land to contribute to the protection of Canada’s environmental heritage. Under this program, certain donations of ecologically sensitive land or easements, covenants and servitudes on such land are eligible for special tax assistance. Individual donors are eligible for a charitable donation tax credit, while corporate donors are eligible for a charitable donation tax deduction. The amount of the donation, up to 100% of net income, may be claimed in a year and unused amounts may be carried forward for up to 10 years. Any capital gains associated with the donation of ecologically sensitive land (other than a donation to a private foundation) are tax-exempt.
The program is primarily administered by the Environment and Climate Change Canada (ECCC). In order for a gift to meet the requirements of the program, the Minister of ECCC must:
- certify that the land is ecologically sensitive and that its conservation and protection is important to the preservation of Canada’s environmental heritage;
- approve the organization that will receive the gift, if it is a registered charity; and
- certify the fair market value of the donation.
In addition, any easements covenants or servitudes must run in perpetuity in order to qualify as Ecogifts.
To help ensure that donated land is not subsequently used for other purposes, the Income Tax Act imposes a tax of 50% of the fair market value of the land upon a recipient who, without the consent of ECCC, changes the use of the property or disposes of it.
Budget 2017 proposes the following measures in order to better protect Ecogifts:
- Transfer of Ecogifts: the 50% tax that applies when a charity, municipality in Canada, or municipal or public body performing a function of government in Canada, that is the recipient of the donated land, changes the use of the property or disposes of it without the consent of ECCC will be extended to the transferee in cases where Ecogifts are transferred between organizations for consideration and the transferee changes the use of the property or disposes of it without the consent of ECCC.
- Program Administration: to ensure the effective operation of the Ecogift program, Budget 2017 clarifies that the Minister of ECCC has the ability to determine whether the proposed changes to the use of lands would degrade conservation protections.
- Approval of Recipients: where it is proposed that a registered charity be the recipient of an Ecogift, the Minister of ECCC must approve the recipient on a gift-by-gift basis. This is intended to ensure that recipients of Ecogifts are focused on the long-term protection of ecologically sensitive land. However, municipalities and municipal and public bodies performing a function of government are automatically eligible recipients. Budget 2017 proposes that the requirement for ECCC to approve recipients of Ecogifts will be extended, on a gift-by-gift basis, to municipalities and municipal and public bodies performing a function of government.
- Private Foundations: private foundations will no longer be permitted to receive Ecogifts in order to prevent potential conflicts of interest between the donor (e.g. the director of a private foundation) and the donee (private foundation).
- Personal Servitudes: in Québec, where civil law applies, both real servitudes and personal servitudes can exist. However, only real servitudes may be donated under the Ecogift program since personal servitudes cannot run in perpetuity. As the conditions associated with real servitudes can be difficult to meet, such donations are infrequently made. To encourage more Ecogifts in Quebec, Budget 2017 proposes that certain donations of personal servitudes will qualify as Ecogifts, provided they meet certain conditions, including a requirement that the personal servitude run for at least 100 years.