Standard 10: Tax Consequences
The land trust works diligently to see that every charitable gift of land or conservation agreements meets federal and provincial tax law requirements.
Background
As the beneficiary of the tax receipt, the landowner, not the land trust, has the primary responsibility to comply with the specific requirements regarding federal or provincial tax deductions for the donation of land or conservation agreements. Nevertheless, land trusts have a responsibility to see that those requirements are met and should take reasonable measures to ensure that landowners understand those requirements and consult their own advisors about meeting them. The land trust’s role is important in that deductions that are overturned by the Canadian Revenue Agency may make future potential donors wary of working with land trusts, could lead to investigations of the land trust and, ultimately, can reduce public support for deductions as incentives for land conservation. A land trust must take care never to guarantee or appear to guarantee that a deduction will be allowed or what its value will be, but the land trust can help guide the landowner and establish policies to protect the land trust.
Relevant Law
- Income Tax Act, SC 1985, c. I, s. 149.1 (6.3);
see also Canada Revenue Agency policy interpretations at
- Property Law Act, RSBC 1996, c. 377, s. 35.
- Land Title Act, RSBC 1996, c. 250, s. 218-223.
- Canada Revenue Agency policy interpretation of Income Tax Act, SC 1985, c. I; see:
PRACTICE
B. Appraisals
The land trust informs potential land or conservation agreement donors, in writing, of the following: Canada Revenue Agency (CRA) appraisal requirements for a qualified appraisal prepared by a qualified appraiser for gifts of property valued at more than $1,000, including information on the timing of the appraisal; as the beneficiary of the tax receipt the donor has the primary responsible for any determination of the value of the donation (even in the case where the appraisal has been arranged for or commissioned by the land trust) ; that the donor/land trust should use an independent qualified appraiser who is certified by the Appraisal Institute of Canada and who follows the Canadian Uniform Standards of Professional Appraisal Practice; that the land trust will request a copy of the completed appraisal; and that the land trust will not knowingly participate in projects where it has significant concerns about the tax deduction. Appraisals of Ecological Gifts must be done in a manner that meets the criteria of Environment Canada and will be reviewed independently by the Appraisal Review Panel.
Background
The Canadian Revenue Agency has specific requirements for reporting on and determining the value of charitable gifts. These are highly detailed and complex for gifts of property valued at more than $1,000, which includes most donations of land or conservation agreements to land trusts. The land trust needs to make sure the donor knows about these requirements. Helping the landowner understand the law can avoid criticism from donors, help ensure that the substantiation requirements are met and help maintain the credibility of donations to land trusts overall. Gifts of property may also be subject to capital gains. Land trusts should advise landowners about the potential for capital gains (see 10A).
Appraisals of land, especially land with subdivision potential, are substantially different from typical residential property appraisals. Appraisals of conservation agreements are even more highly specialized. The land trust should advise the landowner (preferably in writing) to use a provincially licensed or provincially certified appraiser who is certified by the Appraisal Institute of Canada and who follows the Canadian Uniform Standards of Professional Appraisal Practice. Land trusts may also wish to request a statement of qualifications from appraisers that they are not familiar with.
Appraisals should be commissioned by the land trust but may be paid for by either the land trust or the landowner or by both jointly. In instances where the landowner is responsible for the appraisal, land trusts should have a practice of requesting a copy of the landowner’s appraisal. Where an existing appraisal is used, it should be dated within a year of the donation, or the land trust should request an update from the appraiser.
While the land trust cannot pass judgment on the appraisal, it does have an interest in helping to see that the donor’s appraisal will meet Environment Canada's or the Canadian Revenue Agency’s requirements and that the appraised value does not appear unreasonably high and thus likely to attract a CRA challenge or cause difficulties in the certification of the donation's value by Environment Canada. If the land trust believes the appraised value is significantly overstated, or the project does not conform in some other way with the tax law, the land trust should share its concerns with the donor and decide whether to proceed with the transaction. The danger of appearing to be a party in a transaction that unfairly benefits a private individual—or, worse, perpetrates tax fraud—is a serious risk. It could jeopardize not only the credibility and tax status of the land trust, but also the credibility of donations to all land trusts.
Assessment Questions
CLTA Assessment Questions
- The land trust notifies potential donors in writing of the following (check all that apply):
- CRA appraisal requirements for a qualified appraisal for gifts valued at more than $1,000
- Information on the timing of the appraisal
- That the donor, not the land trust, is responsible for any determination of the value of the donation
- That the donor should use an appraiser who follows Canadian Uniform Standards of Professional Appraisal Practice
- That the land trust will not knowingly participate in a project where it has significant concerns about the tax credit
- Does the land trust request a copy of the completed appraisal?
