ECOLOGICAL GIFTS PROGRAM

Transcription

1 ECOLOGICAL GIFTS PROGRAM Laura Kucey, Environment Canada David Babineau, Appraisal Review Panel Chair OLTA GATHERING OCTOBER 2015

2 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 Page 2 - October 2015

3 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. Page 3 - October 2015

4 ECOLOGICAL GIFTS PROGRAM (EGP) Federal program made possible by the Income Tax Act Administered by Environment Canada in cooperation with many partners Landowners with ecologically sensitive land - significant tax benefits - contribute to the protection of biodiversity Qualified Recipients - ensure that the land s biodiversity and environmental heritage are conserved 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 Page 4 - October 2015

5 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 Page 5 - October 2015

6 Page 6 - October 2015

7 Page 7 - October 2015

8 Page 8 - October 2015

9 Page 9 - October 2015

10 Page 10 - October 2015

11 Page 11 - October 2015

12 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 Page 12 - October 2015

13 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) Page 13 - October 2015

14 RECIPIENTS 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 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 Page 14 - October 2015

15 EGP STRUCTURE Independent Appraisal Review Panel (across Canada) EGP National Secretariat (EC Ottawa) PYR Regional Coordinator PNR Regional Coordinators Ontario Regional Coordinators Québec Regional Coordinator Atlantic Regional Coordinator (Vancouver) (Winnipeg and Edmonton) (Toronto) (Québec City) (Sackville) Donors and Recipients Page 15 - October 2015

16 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 Page 16 - October 2015

17 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 Page 17 - October 2015

18 Donor / Recipient steps Timelines self dependent Ecological Sensitivity Submission Environment Canada steps Estimated timelines IF FULL AND COMPLETE SUBMISSIONS ARE RECEIVED Ecological Sensitivity Review Certificate of Ecological Sensitivity issued less than 3 weeks Appraisal & Application Submission Regional Appraisal Review National Secretariat Appraisal Review 2 weeks SIMPLIFIED EGP PROCESS AND TIMING Appraisal Review Panel Review and Recommendation Notice of Determination issued within 90 days Notice signed and returned to EC Land Transfer / Closing documents submitted to EC Complete File Review Statement of Fair Market Value issued 2 weeks Page 18 - October 2015

19 Donor / Recipient steps Timelines self dependent Ecological Sensitivity Submission Environment Canada steps Estimated timelines IF FULL AND COMPLETE SUBMISSIONS ARE RECEIVED Ecological Sensitivity Review Certificate of Ecological Sensitivity issued less than 3 weeks Appraisal & Application Submission Regional Appraisal Review National Secretariat Appraisal Review 2 weeks SIMPLIFIED EGP PROCESS AND TIMING Appraisal Review Panel Review and Recommendation Notice of Determination issued within 90 days Notice signed and returned to EC Land Transfer / Closing documents submitted to EC Complete File Review Statement of Fair Market Value issued 2 weeks Page 19 - October 2015

20 Donor / Recipient steps Timelines self dependent Environment Canada steps Estimated timelines IF FULL AND COMPLETE SUBMISSIONS ARE RECEIVED Ecological Sensitivity Submission should include: 1. Donor indication of intent 2. Recipient indication of acceptance Ecological Sensitivity Review Certificate of Ecological Sensitivity issued less than 3 weeks 3. Current Title Abstract 4. Ecological Sensitivity Application - Donation type / area - Assessment of ecological character - How EGP criteria is met Regional Coordinator: opens a file reviews and substantiates ecological sensitivity submission against national and provincial criteria prepares Certificate for delegated signing If applicable: 5. Conservation Easement 6. Designated signing authority Page 20 - October 2015 ECOLOGICAL SENSITIVITY

21 Page 21 - October 2015

22 Donor / Recipient steps Timelines self dependent Environment Canada steps Estimated timelines IF FULL AND COMPLETE SUBMISSIONS ARE RECEIVED Ecological Sensitivity Submission Appraisal & Application Submission Ecological Sensitivity Review Regional Appraisal Review Certificate of Ecological Sensitivity issued National Secretariat Appraisal Review less than 3 weeks 2 weeks Appraisal Review Panel Review and Recommendation Notice of Determination issued within 90 days Notice signed and returned to EC Land Transfer / Closing documents submitted to EC Complete File Review Statement of Fair Market Value issued 2 weeks Page 22 - October 2015

23 Donor / Recipient steps Timelines self dependent Environment Canada steps Estimated timelines IF FULL AND COMPLETE SUBMISSIONS ARE RECEIVED Appraisal AND Application Submission should include: Independent appraisal of the fair market value of the proposed donation conforming to EGP guidelines Regional Appraisal Review For completeness, accuracy and compliance National Secretariat Appraisal Review 2 weeks 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 INDEPENDENT Appraisal Review Panel Review and Recommendation Notice of Determination issued within 90 days APPRAISAL REVIEW NOTICE OF DETERMINATION 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 Page 23 - October 2015

24 Page 24 - October 2015

25 Donor / Recipient steps Timelines self dependent Ecological Sensitivity Submission Environment Canada steps Estimated timelines IF FULL AND COMPLETE SUBMISSIONS ARE RECEIVED Ecological Sensitivity Review Certificate of Ecological Sensitivity issued less than 3 weeks Appraisal & Application Submission Regional Appraisal Review National Secretariat Appraisal Review 2 weeks SIMPLIFIED EGP PROCESS AND TIMING Appraisal Review Panel Review and Recommendation Notice of Determination issued within 90 days Notice signed and returned to EC Land Transfer / Closing documents submitted to EC Complete File Review Statement of Fair Market Value issued 2 weeks Page 25 - October 2015

26 Donor / Recipient steps Timelines self dependent Environment Canada steps Estimated timelines IF FULL AND COMPLETE SUBMISSIONS ARE RECEIVED Three options for the donor: Notice of Determination NOTICE OF DETERMINATION 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 STATEMENT OF FAIR MARKET VALUE Notice signed and returned to EC Land Transfer / Closing documents submitted to EC Complete File Review Statement of Fair Market Value issued 2 weeks Final title abstract showing that the donation has occurred Including FINAL, SIGNED, REGISTERED conservation easement, if applicable Page 26 - October 2015 The value on the Statement should appear on the donation receipt issued by the recipient

27 SAFEGUARDS FOR ECOLOGICAL GIFTS Under the provisions of the Income Tax Act s 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 Page 27 - October 2015

28 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. Page 28 - October 2015

29 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. Page 29 - October 2015

30 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. Page 30 - October 2015

31 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. Page 31 - October 2015

32 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. Page 32 - October 2015

33 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 Page 33 - October 2015

34 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. Page 34 - October 2015

35 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. Page 35 - October 2015

36 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 Page 36 - October 2015

37 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: Canada Revenue Agency (CRA): Gifts and Income Tax - website Gifts and Official Donation Receipt, IT-110R3 Proposed Guidelines on Split-Receipting, Income Tax Technicial News No. 26 Page 37 - October 2015

38 NEXT PORTION OF THE PRESENTATION CHOOSE YOUR OWN ADVENTURE 1 ST : Questions so far? We likely can t cover all of the items listed below, so 2 ND : 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 Page 38 - October 2015

39 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 reroute back through the EGP and the Panel for review Not submitting baseline documentation Page 39 - October 2015

40 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 Page 40 - October 2015

41 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! Page 41 - October 2015

42 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? Page 42 - October 2015

43 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 Page 43 - October 2015

44 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 Page 44 - October 2015

45 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? Page 45 - October 2015

46 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 Page 46 - October 2015

47 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 Page 47 - October 2015

48 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 Page 48 - October 2015

49 OWNERSHIP Q&A 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 Page 49 - October 2015

50 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 Page 50 - October 2015

51 OWNERSHIP Q&A 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 Page 51 - October 2015

52 OWNERSHIP Q&A 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 Page 52 - October 2015

53 TITLE ABSTRACT BEFORE GIFT Page 53 - October 2015

54 AFTER A CONSERVATION EASEMENT Page 54 - October 2015

55 Page 55 - October 2015

56 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 (of the ITA) EGP-ON has a couple of gifts that have gone through the process Page 56 - October 2015

57 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* Page 57 - October 2015

58 OWNERSHIP DETAILS 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/ % American Mr. Sp 1/ % American Ms. S 1/ % American Mr. G Ms. G 1/10 10% 1/10 10% Canadian Canadian 4/8 interested in participating in the EGP 60% Canadian Page 58 - October 2015

59 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 Page 59 - October 2015

60 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 Page 60 - October 2015

61 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 Page 61 - October 2015

62 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) Page 62 - October 2015

63 REGIONAL CONTACT Laura Kucey Environment Canada 4905 Dufferin Street Toronto, ON M3H 5T BUT changing to Page 63 - October 2015