In Yellow Point Lodge Ltd. v, The Queen DTC 1130, the Company owned certain lands on Vancouver Island, mostly undeveloped and in its natural state. In June 2008, the Company granted a covenant and other specified legal interests with respect to a parcel of ecologically-sensitive land, to two organizations, with estimated fair market value in excess of $5 million.
Initially, the Company did not claim a deduction in respect of its gift because it had not at that time obtained the required certifications to document the gift:
– A statement of Fair Market Value, (which was received in December 2009).
– Certification of Ecologically Sensitive Lands, Receipt identification and Registered Charity Approval,(received in December 2009).
– Donation tax receipts from the 2 organization to which the gift was made, (both received in February 2010).
In the Spring of 2009, the Company refiled its 2008 corporate tax return to a claim a deduction for a portion of the donation made. In subsequent years (2009 to 2013), the Company continued to claim deductions in respect of its gift, for total claims of approximately $2.8 million to the end of 2013.
In 2014, the Company claimed a deduction in respect of the same donation for approximately $1.5 million. The deduction was denied by the Canada Revenue Agency (“CRA”) on assessment, on the basis that, as the donation had been made in 2008, the permitted five-year carryforward period for such deduction had expired before 2014. The company appealed the assessment on the basis that the deduction in respect of the gift was not valid and the five-year carryforward permitted did not start until 2009 when the requisite certificates and approvals were issued.
The appeal was dismissed. The Tax Court held that the relevant statutory provisions in the Income tax Act governing charitable donations of ecologically-sensitive land separated the making of the gift of property, and the timing thereof, from the determination of the fair market value of that property and the issuance of the necessary certificates. The Judge noted that a gift of ecologically sensitive land would be a valid gift, as a matter of law generally, even if the corporate donor never obtained the necessary certificates from the Minister of the Environment. The applicable provisions of the Income tax Act indicated that gifts of ecologically sensitive land are made when such gifts are legally effected and, in the circumstances, such gift was made by the Company in June of 2008. Deduction in respect of that gift could therefore only be made in the Company’s 2008 through 2013 taxation years. The CRA’s denial of such deduction for 2014 was correct.
A good case to keep in mind if you are planning for similar gifts in the future, whether as a part of an estate plan or not.