You Can't Give it Away: Tax Aspects of Ecologically Sensitive Lands by NRTEE

Printed 1992 Ottawa, Ontario ISBN: 1-895643-15-5 This paper was prepared by Mr. Marc Denhez under contract to the Canadian Wetlands Conservation Task Force. Mr. Denhez is a lawyer resident in Ottawa, Ontario and a member of the Bar of Ontario, Quebec, and the Northwest Territories. The Sustaining Wetlands Issues Paper Series is published by the Secretariat to the North American Wetlands Conservation Council (Canada). The series is devoted to the publication of reports concerning wetland management, policy, and science issues of national interest in Canada. The objective of the series is to make Canadians more aware of the importance of the wise use and conservation of wetland ecosystems and their natural resource values. This paper was produced through the cooperation and funding of the: .

Canadian Wetlands Conservation Task Force,

National Round Table on the Environment and the Economy, and the

North American Wetlands Conservation Council (Canada).

Copies of this report are available from the: Secretariat North American Wetlands Conservation Council (Canada) Suite 200, 1750 Courtwood Crescent Ottawa, Ontario K2C 2B5 Cover: A private land stewardship area in Manitoba. Photo: K. Cox Regalementdisponible en francais sous le titre : Ce nâ&#x20AC;&#x2122;estpas un cadeau : les tev-res &osensibles et la fiscaltt?.

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Acknowledgemenfs

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. . . . . . . . . . . . :.....: . . . . . . . . . . . . . . . . . . . . . ..I . . . . . I;..: . . . . . . _I..:. . . . . . . . . . . . . . . . . . .‘...:-.:..: . . . . . :.iv

’

.. Executive S’ummary . . . ... . . . :.I-.‘.,. ..?. . . . . . . . . . . . . . i . . . . . . . . . . . . . . . . . ;,..: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . :: . . . . .iv

‘. ,I

Foreword.:. . . . . . . . 1.: . . . . . . . . . . . . . I.........-........

1. . . . . . 1.: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . l...... I . . . . . . . . . . . . . . . . . .._. ._..... vi

.. I

I .’

1 .~&&onpm&

‘I ,’ .

Shortcokings The O&on

. .‘_..;.......~......,.................................................~............................~.~.................

‘?

.‘.,

Cbpital

Gdins on Donated

‘Rect@s

for Ddnations

Cumulakve

Pripehy

Conk-vation

._ -. ... ‘... .

~O~tions,&der

. . . . . . . . . . . .I....‘.:. . ._.. . . .. . . . . . . . .. . . . . .. . . . . ..~.............-..........................~..............

OfCovenants/Easements/S&-vi&&es..

Cons~derkion

Reco&me@ations

I...; . . . .. . . .. . . . . . . . . . . . . . . ....I. . .. . . . . ....:...:. . . . . . .. . . . . .-..: . . . . . . . . .8

CapitalGainsbzdCo’venants;.., :

I .

. . . . .. . .._....._.... l........ . . . . . . .. . . . . . . . .. . .. . . .. . .. . .. . .. . .. . . . . . . . . . . . . . . . .._............... 15

. Receipts for Dokations

.,.....

Covenants and Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. . . . . .. . .. . . .. . ..~........................ ‘15

Basic P&&ples

.,..... . . . ...9. Cornpa-pkon m, ,with Other Gzfls . . . . . . . . . . . .. . .. ...’_.._1.:. . . . . . . . . .. . . .. . . . . .:,..: . ... .. . .. . . S~~..r..:.:: Opt&s uti&er Consideration . . . . . ;I. . . . . . .. . .. . .. . . .. . .. . .. .. . . .. ._. . . . ... . . . . . . . . . . . .. . . ...’. . .. . . . . .. . . .. . .. . . 13. Recommer@ations.:

. . . . . . . . . .._...:. .. . .. ... .;. .. . . .:.. . . . . . . ...I. .. . . ... . .I..... I..,....,. .. . :..6

. . . .. . ... .. . .. . . ..1..............................~...................................~...~.....

Efjecs . . . . . . . . .l.......,..........

-PrirzcipleS ,. . .. :. .. ._. . . ...-..~.........‘........~......~..........................~......................,..~...,.. ..

B&c

: ;

The lncoine Tax Act atid EcologicaNy Sensitive Lands . . . . . . . . . ;..: . . . . . . . . . . . . . . . . . . . . . . .:. .._.. _.._....._. 5 Gene& ‘......_. . . . ._’. . . . . . . ..~............................................................~.......................~..~................ 5: Gifts of Reti Estate...... .. . ..“.............................................................~...................................... ‘.

‘.

‘:,

ofTax Change. .. . .... . . .:.: . . . . . . .. . . . . . . . . . . .. . .. . . .. . . . . . . . . . . . . .. . . . . . . . . . . ;..: . . ...’. .. . .... .. . .. . .. . . .. . :i

The Concern of NGOs . . . . :............._...... :.....; . . . ... . . . . . . . .. . .‘-. .. . . .. .. . .‘..;,.;...‘.1:. . . . . . . . . . . . . . . .. . .. . . . . .. . .. . ..3 ‘. . ._ Other T& Levels .. . . . . . :.... . . . . . 1:. . .. . . . ...A _....._.......: . . . . . . .. . . . . . . . . . .._............. . . . . ... . . . . . . . . . . . . . . . . . . . . . . .. . ;. 5 *. :

.._.......... 1..,.: . . . . . t. . . . . :......1...: . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .l.......... . . . . . .. . . . . . . . . . . .._............... 1

.. Conventional Wisdom . . ., . ..,.~...;.......................~.,...........~...,..,............................................. _’

‘1

jntroduction

. . .. . :. :. . . .:_.. . .:. . ..:.:.16

‘II .;

:..

.. .. . . .. . . . . . . . . . . . . . . . . ~.:.. . .. . .. . .. . .. . .. . ..:....-... . . . . . . . . . . . . . . . . . . . . . .‘.:I9

. ,:.

.. . . .... .. . .. . .. . .I. . . . . . . . . . . . . . . . . . . .. . .. . .. . .. . .. . . .. . . . . . . . . i..,...: . . . . . . . . . . 120

. . ...‘.. . . ..:,I .,...................:

. . .. .1.:. . . . . . . . ....’i..........................:

. . .. . . . . . . . . . . . .21

,...

I I

‘.

.Oiher Federal atid Provincial Taties . . . . . . . . .:....: . . . . . . . . . . . . . . .‘.........._.i . . . . . . . . . . . . . . . . . . . . . . . . .._.._... ::. . . . . 21. ‘The Goodsand‘Services~~ax ProvincialT;txes

. . . . . . . . . . . . . . . . .. . .. .1.:..: . .. .. . . .. . .. . .. . . . . . . . . . . . .‘...:...lr.: .. . .I::1. . . . . . . . ..:...;....21 ‘..

Qt~erT&anonProperty.:.~

. .. .. .:.:.... . . .. .:..:.:.: . . . . . i......: .,......_.._..................

Pioperty Tax Treatment . . . . . . . . . . ... . ... I . . . . . 1.:. . . . . . . . . . . . . . . . . ..i............ Get&al

‘.

;..‘. . . . . . . . . . . . . . . . . . . . r.............,... 2

.-.

. .. . .. . . . . .. .... . .. . . . . . . . . . . . . . . . . . .I . . . . . . . . .,........: ;..., ;.....: .. . .. . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. . .. . . .. . .. . .. . . . . . . . . :22 ‘.

.. .

. ...

‘_ : /

.’

._ :

: .

‘. I

:’

Classic’Priy@es

....

Prefer&al .’ Preferential

of Assessmt-nt..

Methodologies Calchlations

Agricu&raiAssessments..

..... .:!.:. ..l.. .......... :. ........ .:. . .f.................... .24

T%e Concern fok Municzp&

........... l.. ... :...2 5

....................................

... . ......... ..:. ........................

fiistinctRate.$

.:. .. . ...... . ........ .:...... ............ .:. ........... ..2 5 ..... 25 ... ....;.......t ................................................... . ....... .26

...._..... I., . ..r.. ....... ..__._............... .... . ..............................

. . . . .l.............................

Treatment

Treasuries.

Procedures..

,’

. ....... ,125

............ . ....... .......... . ...... . ..... .:............. ...... :.:. ...... . ... .26

... . . . . . . .. :. . . . . . . . . . . . . . . ..*....................~...~................~..............~..........~..........

Egemptions

...... . ............. f.. ..... . ...................... . .... l., ....... :I... .................. .25

The-Outcome: Certain Preferential

DistinctEvaluatioti .

. ................ ..‘.............. _‘........ I.......... :.24

.............................

Wooddots atid Forests.. ............. :....................... ...... Asiessme&of Lands uhder+zsement/Covenarit

Specific Favourable Mea&es..

. ............. . .... ..2 4

Tax Payable .... ..:. ....................................

.’ .......... ...................................................................

for Assessm&t

“R’e&e&maE”kssessinen$s..

.: :

..... -24 .

....... ..i.........................~..................~...........~....................~.......~...................~

kessments

i. ... . .. .l....,..,.. . . .. . .. . . . . . . . . . . . . . . . . . . . . .1................ :.......... 28

atid Grants . . . . . .. . . . . ...l.....: .. . .. . . . . . . . . . . . . . I.... . . . . :................~. :...&?9 .‘. 30 Freezes . .. . .. . . . . .. . . . . . . .. ..~......~............................~...................................~..........~.......~..... ., Fe naities on Conversions . . . . . . . . . . . . . ...I . . . . . .. . . . . . . . .. . ..I... . ... . . . . . .I.,.. . . . . . . ._.,I.. ..( . . . ..:... . . I... 30 Offsetting

Penalties Pr&incial

Rebates

on V&&t-Land

,, -.

... . . . . . . . . . . .. . .. . .. . . .. . .-... .. . . .. . .. . . . . . . ..,............ 1.................: . . . . . . . . .31:

ahd’Territor’ia1 Profiles. . . .. . . . . .1.... . .. . ..,... ;. . :. . .. . +. .:. . . . . . . . . .. . . .i. . . ... . . . . . . . . . . . . . . . . . .3 i

. . .. . ..~......!......~.................................................................................

Bri$s@ Columbia

* . ,

Alberta: ._....._.._...:. . . ... . . . ... . . .. . . . . . . . ;‘..!. . .. . .. . . .. . .:..:..l.; . . . . . . . . . . .. . . . . . . . . .. :.I. . .. . . . . . . ...’. ...! ;.:..; ,...... 32 I

j :

-Saskatchewan .:

. . . . . . . . . .._.... :..;....:. .. . .. . . . I...: .. . . . . . . . . .. . . . . . . . . .^. . . . .;...;...; . .. . .. . . . . . . . . . . . ..,......... :...32 ‘. Manitoba . . ~... . . . . . . .. . . . . . . . . .:-.......: .. . . . ... , ._.._..::. . . . . . . . . . . . . . . . . . . . . .. . .. . .. . . .. . .._... . .. . . . . . . .I...,...... :..32’. _’ Ontario. . . . . . . . . . . . . . . . . . . . . .. . .. . . .. . .. . ... .. .. . . .. . . . . . . . . . . . . . . . ..‘................................~..........-......~. 33 QQuebec . . . . . . . . . . . . . . . _. . . . . . . . . ~. . .. . . .. . .::. . . .. .._....._.......................... New Brunswick

l....... ~.. . .. . . . . . . . . . . .. 1. . . . . . . . . . . . ..34

. . . . . . . . . . .;.-. .. . .. I......: . . .. . . .. . . . . . . . . . . . . . . . . . .. ....’.. ... .. . . .. . .. . .. . ... . .. . . . . . . . ...! . . .. . .. . .. . . .34

Nova Scotia . . . . . . . . . . . . . . . . . . . . .. . .. . . . . .. . . .. .. . . .. . .. . ..~....~.....~.............~.............................. ‘Prim% Edward

Island.. . . . . . . . l...l........: . .. . . . . . . :.:...: . . . . . . . . . . . . .. . .. . .. . .~.;. . . . .. . . . . . . . .1.. . . . . ,......L.. 35

N&&foundland

. . . . . . . . . . . . . . . .. . .. :.-. .... . .. . .I......... f. . . . .. . . . . ~. . . . . ~. .. . . .. . .. . . ... .. . ..I:. . . . . . :......._’. . . . .36’

Northwest ..

..~ . . .‘.34. ..

Territories . . . . .... . . . . . . :...; . . . .. . .. . ._............ ‘..:. ...’. . .... . . . . . . i .. . .._..... I. . . . . . . . . . . . . . . . . . . . .. ..36

Yukon’ .........................................................

. ........... . .............. 1....................................

N&v Measures urid{r Considerarion ..................... Recommendatiions

.37

.:. .:. ................ .I.......... ._........................... .:................... .37

..................

.: ........................ ...;. ..... .37

. .......................

. .

Sumtixq

of R&mnmen&ion&

. . . . :.: . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . ..-..

:... . . . . . . . . . . .~..,......,: ..,...... 38 ..

: . . . . . . . . .39

References . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . ..i.................~............................~..............................

.... ..

Appetkes

. . . . . 1.;: . . . .~_...........................:

&p&dix

. . . . . . . . . .._.. ..: . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . ...*.‘....,.............

A: Tax Treatment bf Donations of &ltural

and Natural Heritage ... . .1.... . . . . ..44

.Appendix B: Four Ontario Propekty Tax case Studies . . . . ..,:. . . . . ..:.. ..: ...-... . . . . . .:. . . . . . ..:.50

‘.

: .

., :

.. .

‘.

,’

he author

‘*.‘. .T

cere

exp.resses

gratitude

his sin-

toward.

Valiquette,

the

Steven

many people who have assisted in the compilation

Jane

Suchan;

Roots,

Larry, Collins,

of this

Editorial and production by the Secretariat

to the members of the Canadian Wetlands Conservation Task Force’ and its

the North American Wetlands Conservation

interest

Kenneth

W. Cox :for their

i,n supporting

and the concep.ts

.both this paper

Jennifer

Whybrow and.Stephen M. Van Dine. ,.

paper. In particular; .thanks are extended

Chairman,

‘Miles Briggs,

Council (Canada) and ‘. . . the National Round

within it. Thanks are

Table

also owed to April-Ionson, Larry Simpson,

on the

Economy

Ackrhwled&ments' ,.

Environment’

is sincereIy

and

appreciated.

D.Cl Peckham, Jackie Waddell,, Cathleen

errors and omissions,

O’Grady,

exclusive responsibility of this writer.

David

Morrison,

Pierre”

assistance

however,

the Any

are the._.

~; T.c~s~ft~~spa~e~i~“nt~e Zncom’e Tazq Act (Canada) .and on the property,

tax systems

which are in pIace in each province and territory. How do these tax “’ systems affect the setting.aside of ecologi-

caliy significant

.../’respects, ..’ philanthropic’ -“‘~” .’expenditure-, ‘. ‘. receives worse treat’ment than business. expenditure. ’ Giving artificially poor treat: ment. to donations.

lands fo.r conservation

purposes? In the. case- of wetlands,.‘one -of. Canada’s most threatened habitats on pri.

vate land, every available institutional .instrument to protect them is essential. However, the federal income tax system

‘. iv

1990a). Furthermore,,,.because budgetary allocations for purchase of environmen-

against.a Green FZan objective of securing

to a government)

conservarion of 12% of the Canadian land-

by a usable tax receipt,commensurate

mass. While

with .the value of the gift. Sometimes rhe usable receipt is obliterated altogether.

laudable goal for public.lands protection in Canada,. nation-wide conservation of our biodiversity will have to be achieved

the receipt. Due to these legal fictions, ‘gifts of Canada’s natural heritage have a substantially worse treatment than gifts of Canada’s cultural heritage; in certain key

”

.private sector “partnership” foreseen in the been Plan .(Government of Canada

ronmentally significant land (to charity or

capital gains (and potential capital gains tax) .to -er.ode the tax benefits of- the receipt; furtherinore, artificial numerical limits are imposed upon the. usability of

of .ecologically sen. s,tive lands is no,way to foster the public-

tally sensitive lands are, scarce, failing to encourage donations of such lands runs.

That is because the Income &XXAct introd.uces a legal fiction,, saying that the donor has received proceeds on the gifts. ,L when he or she has received nothing.. The -Act thereupon ,contributes- deemed

.Executiv~Summary :,

is not neutral, but negative: a gift of envi- .. is.seldom accompanied

’ .

. .

this 12% target

(

may be a:

on .a much broader area, much .of which is on private land. That is not ‘encouraged ,under the fiscal status. quo: This paper recommends the elimination .of the legal

1.‘.

fictions which currently roll back the usability of receipts. for donations of Canada’s‘natural heritage, on .the model of donations ofCanada’s cultural heritage. Problems also beset the income tax .. treatment of conservation covenants and easements.,Although Revenue Canada has -finally acknowledged that charitable

: ‘_

. ,

’

donations’ of conservation covenants and .easements can give rise to charitable

I-

deductible

(2.0% of income)

Business expenditures

This paper also recommends the elimination of this legal fiction, .namely, deemed

ceiling; and there is no policy reason why altruistic expenditures.

donations

‘.

should be

If the Government

Canada insists on retaining a ceiling, ‘.

whereby ,gov-

then the ceiling should be the same as in the case of donations to senior

to charities, farmers, or lumbermen, etc.). Some provinces specifically .p.rovide advantageous treatment to conservation lands. Elsewhere, these lands tend to be

al heritage should .be no worse than that now enjoyed by’ donations’of

gove’rnments (100% of income). .. Recommendation No. 3: .The .tax treatment of donations of Canada’s natur:

Canada’s cultural heritage. No. 4: Charitable donations of covenants or easements,

in a low tax category anyway, because of certain established practices. These include appraisals coinmensurate. with

providing advantages to, con- ’

ments already employ .td provide mostfavoured status .to other categories of property. The paper presents eight specific recdmmendations in that regard: No. I: ‘The legal fictionwhich attributes deemed capita1 gains (an,d potential deemed capital gains tax)to*donations of eco.logically sensitive real estate should -be abolished.

Recommendation

s&e lands, should not be subject .to deemed. capital gains or a ;20%

‘, .

.. such as on deemed capital gains. No.- 6: All provinces ‘... and territories should be .encouraged to ,amend their property. tax assess-

Recommendation

mentl/collection legislation, to make specific reference to conservation of

viding most;favoured status), this paper does not recommend any single property tax measure for conservation lands, but instead-recommends. these lands be put on a par with whatever practices govern:

of ecologically sen

protective covenants and easements by environmental. charities may’continue to be subject to %ST but should not otherwise trigger.tax liabilities

ination of th,at tax burden would not make a significant monetary impact .on municipal treasuries. However, statutory .. servation lands would nevertheless have important symbolic value. Because of the plethora of existing ‘practices (and. existing methods of pro-

for the protection

income limitation,. any more than donations of other interests in ecologically sensitive lands. Recomm&ada$ion No. 5:. Purchases of

tively low level of taxation and even elim-

provisions

Recommendation

income-producing levels (i.e. low), and. . assessments consistent ‘with. farms’ and wetlands (which also tend to be low). @thou& there are some notable excep tions, most such properties, including. ’ ’ wetlands, are currently subject to a rela:

have no such

ernments provide most-favoured status to certain properties (whether they belong

wide variety of. techniques

.’

should be lifted.

treated less favourably than business

‘.

it the .property tax level, there’ is a

expenditures

receipts, the possibility of deemed capital

conservation. covenants and easements.

.charitable

gains tax .has not been eliminated either.

capital gains on the. donations or sale of

No. i: The ceiling on

Recommendation

ecologically sensitive lands. No. 7 Those refer: ences should put ecologically- sensi-

Recomq?ndation.

:tive lands on a par with whatever othe~r private or charitable lands enjoy most-favoured status. The e.xact mechanism in doing so should correspond to the jurisdiction’s established practice ‘for other most-

.’ favoured properties. No. 8: The legislation. ‘. should provide for a tax clawback on ,conversion of the property..

Recommer#dation

, _-

‘.

. . ‘.

.. / .

. n’

[ .-

1 onservationists ‘.

L.2

waters ‘.

have an uphill

tiatives

hang ,onto

serve ‘wetlands initiated by- the Forum are being continued. The man-

existing.

secure additional across

this country;

w.aters that protect box of .institutional conservation

and

lands and ‘. .lands and ‘.

on private

the

the Forum relates to land assessment and taxation laws and procedures in Canada.

are often difficult.

.’

The followingstatistics indicate why such. concern needs expression and attention. ’

to understandand. appreciate, even for an expert in the ‘field. This paper addresses

Canada’s ,most productive .lands and

how’.the Incomt? T&Act (Canada) and the property tax systems in .place in each

its ‘people are concentrated em portions. Ninety-percent

province and territory affect the setting aside .of ecologically significant lands for conservation purposes. The Canadian Wetlands Conservation

live within 250, km of the Canada-United. States b.order,’ mostly on private lands: ,While only 10.8% of Canadhis lands are in private ownership; this area encompasses over 920 606 km2 upon which the vast

Task Force-(CWCTF) was formed in.1991 as .a result of recommendations to’the

in its southof Canadians

‘.

.. ..

-, _’

Forum”. The’purpose’of this Forum was to stimulate discussion on opportunities to sustain wetlan’ds by providing the. ’ broadest possible environmental and eco-

.tion and regulati-on is one of the. institutional arrangements av.ailable to accomplish such security and manage-

.‘nomic benefits to Canada. The Sustaining

meht of ecologically- sensitive lands.

1Wetlands Forum (1990) focused on the i.ntegration of soil, water and wetland

’ The facts and issues concerning legislation’and regulation in *Canada often-‘misunderstood and’ confusing many in .the conservation arena. It is .intehtion of this document to pull the &ant

sis was placed on agricultural, municipal, business, and environmental conservation responses to the North American Waterfowl Management Plan, wetland

’

tax are: to the, rel-

. . I’

I :

material on .this subject ‘together,

and/or improve the tools ‘in .our box ‘of institutional arrangements for

., ”

Kenneth.W. Cox

‘.

Chairm& Canadiaiz Wetlands Cons&w&on .Task-Force ‘,

‘_ :

‘,.

conservation.

-..

analyze it and present recommendations which. can be helpffil to conserving Canada’s precious. land -and water resources. We’offer this publication for .. .your information and use -to expand

conservation policies, and the sustainable use .of wetlands in- Canada.

of biodiversity in these areas. Tax legisla-

conservation initiatives and how these .coordinated approaches might generate benefits for. all’ sectors Particular emphavi,

‘.

‘-

majority of .the population lives. Helping : Minister of the Environment: following .a .. those private owners who wish to retain ,national polity‘conference, held in April all ‘or .portions of their land .for conserva1990, entitled the “Sustaining Wetlands tion purp.063 is critical to the. retention I

73, I?ecommendations

have

‘. lation ‘and regulations

. ..-

For&or&

strategies for

neither been analyzed nor’ used to the extent they should have been. Such legis-

and tax regulation

‘..

date of the CWCTF.is to evalimplementation

lands,

‘.

thrusts to con-

uate and -identify appropriate.

In the tool-

.arrangements

and intersectoral

emanating from the Sustaining Wetlands. Forum. bne area of concern.expressed at

tax legislation

;

both. our wild vistas

and the :earth?s biodiversity. achieve

Through the work of the CWCTF, ini-

trail to navigate ‘to be able to

. . ..

Cqnventional

.1 Sti&tcqmiiigs

Wisdom

The question .of how to:add to Canada’s .’ inventory of protected green’space is not new, nor is the question, of the rightful role of the private sector in participating in the protection

of ecologically

acquisition.

sensitive

of!a relatively

traditional. increasing Reid, “It ,has -that public

,, _ .

’

small number of key areas is ..l&&&jn. not ‘enough.“’ Furt.hermore, ; as the Canadian. Parks/ Recreation Association said,

lished. wisdom for a century ,has posited that the protection of ecologically sensitive lands would best be achieved by pub..

..., Within recent .years, the approach has come under attack. In the words of ,Ron become increasingly clear

Ian&for future generations... ” Within. the public sector, the estab-

lit ownership. If the protection oflands were considered essential, a -way might

‘.

:R ‘1 ..

.“Open space is not the sole responsibility of government.“? This rethinking. of the governmentrs role comes at the same

be found to integrate those lands-with the federal, provincial or, municipal parks sys-

time that conservationists across North America are setting up land trusts and

tern. With’the passage of time, other regulatory methods were introduced. The . . expansion of the network of protected

using other mechanisms for charities to ‘: set aside ecologically sensitive lands or

: lands, by implication, was assumed to be the responsibility ,of the public sector at : the.taxpayers’ total expense: when a ( “.. .private sttiwar&& n&t become a given property was considered both vital kmtinuing program- iA. natu&l landscape and ; and endangered, the assumption (among both, public and private sector interests) :’ habitat .setiqrement.and management.” wildlzfe ‘. was. that its protection would depend upon public acquisition (by purchase or ‘, coxIr%% ‘. expropriation).. A more detailed‘discus-. sic& of this concept

is ‘presented in Cox

(1989). In later years, there were various : governmental .attempts. to impose environmental controls without, however,

‘. hold conservation covenants;/easements. for .them. Ron Reid in .an estimate of the annual conti&ion.of Canadian non-go+

being obliged to compensate private sector interests; this often led to a.pre-

ernmental

dictable adversarial relationship’. At no ‘. point .in history has there been a .true .’ national attempt to develop a partnership (between. the .private and public sectors ext,ending all the ‘way into tax departmerits) in the setting aside of wilderness , for f&u-e generations. .:

1. Reid (15&3),~p. 6: 2. Canadian Parks/Recreation Association National Pot@. Ottawa (undated), p. l.‘A gropiing number ofvoices in the conservation community question whether public sector ownership is necessaiily a guarantee of protection: could private sector stewardship serve the ,national interest as effectively? For example, - ‘The cow&have geld that parks legislation does not stop the Ontario Gotiemmedt from permitting a cement company to ,cart away the sand dunes at Sandbanks Provincial Park. - The,fact that open spacehad been bequeathed in.Ottawa for “national park” purposes did not stop the National Capital Commission from attempting,to.put an American En;bassythere.

organizations

to. the setting

‘aside of, environmentally sensitive lands, said “(approximately $50 million) .is equivalent to that of all government agencies.“3 Some observers argue that this is, inevitable: “Canadian geography. dictates that private stewa&hip must become a continuing program ‘in natural landscape _ __^ _ I . .and wildlife habitat securement ancl man-

- Aesthetic property, provided by philanthropists to the public sector at Elora Gorge, was used (some years later) ,. for road and bridge’<onstructidn. - When the enveonmental &es of Inve;huroh’ProvinciaI Park were en?roached upon by the Bruce Nuclear Pow.$r _ Station’s emissions of hydrogen sulphide, the provinctal government’s response was. not to ban the emissions but to ban camping in the park. : If Canadians were satisfied with the public.sector’s 100% commitment to the environmenial values of lands under its control, we would not be witnessipg the current level of public demand for &+ronmental assessme~t.legislation. 3. Reid (1988), p. 6:

. .. ” _ ,_

'1 :

. ~

‘_

. . .. :

. .

acquisition. Secondly; although acquisition secures a particular piece of land, ‘there is no guarantee that ‘the .wildlife

agement” (Cox 1989). Furthermore, these charities-Argue that they are at least as capable of proper. stewardship as the .public sector. A growing body of opinion.

habitat upon-it will remain in good condi-

posits that the key to conservation is.not whether the title-holder to property. is

tion. Those same. budget .cuts have severed much of the money needed to

from the public

manage these areas properly.. There Bre

or private

sector,

but

many examples

what are the .standards ‘of Stewardship which he or she is committed to bringing .to the property? But demands for greater private settor participation ecologically

sensitive

re&ed

lands have also

quarter.

They have

from Canada’s current

and the shortage

of public

deficit,

funds’at

of Crown lands. across .

“.. ;the usable receipts for dqkctions of green space. ‘. ’

a& almost never commensurate with the value Of the gjft, and sometim&are

be available from public treasuries for expansion of. such a system” (Cox 1989): Simply put, if Canada wants to increase its network of publicly-held green spaces, there is no public money to do it. at an extremely awk: Canada’s G&en Play& of Canada. 1990a)4

announced a national objective. of ‘bring-. ing the total protected spaces in Canada to 12% of the overall land mass (among. national. parks alone,

total area wou1.d

purportedly move from 1.8% of the Canadian landmass to .about .3. I.%).‘. However,. even before the @-ken ‘P&a. was published, non-governmental organi-’ iations (NGOs) immediately saw the if these lands were to be protected’ via acquisition and supplementary .budget allocations, where ‘would the money. come from? For example, in order ‘. problek:

2 ,.

‘.

to reach the targeted

12% of Alberta’s

17 million ha (42 million’ acres) of grassland and p.arklan-d alone, incremental acquisition costs would be one billion ,dollars. This would -require acquisition of a further 1.8 million ha (4.5 million acres) at an average price of $557/ha ($225/acre). The traditional concern of NGOs Was summarised by John Morgan: “In times, of fiscal restraint with continuing severe budget cutbacks to all resource:.agencies there simply is little or no money for

4. See pp. 79-80.

obliterated altog&thef,

all

gove.rnmental levels. “Fewer .dollars, will

,This comes ward moment. (Government.

‘.

in the setting aside of

come from another

: Canada that have suffered.i. Thirdly, there is the political unsuitability of large scale ‘. land purchase.“5

The NGOs.- immediately raised. the issue with the federal government. In the .’ view of many, the notion of setting aside .. taxpayers’ dollars for .a major acquisition program was a political and budgetary impossibility, and ‘would automatically’ relegate the Green Plan to. political irrelevance.. Th.at belief prompted them to revive a longstanding proposal: could Ca’nada’ achieve comparable results at

lower cost via the tax system?

The Option of T- Pksnrrs

There shotild he no mistake -__ ^^_._ . ..--_ ahotit’the ___- -.- _-_-

fact that tax e: upenditdres cost mane] 8. If .t,he tax treatme :nt of a given transaction is “enriched” to t he benefit of the taxpayer, ‘that ineans thait the treasury collects less ’ money: it is a “public expenditure” which’ is. every bit. ;1s real as a’government cheque. The cdifference, however., is. in .’ the amount, If the Government acquires a .--- =-. __ ----___ --I dollars either by wetland for one minior purchase or e>rprotiriation, it is spending “one-hundred -cent dollars” and subsequently musst Fn,.- nll’,.no+c ,.,cAn:a+hA with property Ill*‘l~jCII.lLIIL. “11 Cl&C “LIILL .

; .I

‘-

hand, if the same wetland or other ecologically charitable

sensitive

area is donated

organization,

be, made .available ,to’ landowners

who

to a .. .want to preserve their land in its natural

the government

may achieve the same Green Plan objec-

opers or cultivate it to avoid burdensome

tives (subject to proper control) at a cost

taxes under present

to public treasuries of perhaps 40% of the

and federal legislation provide tax relief,

above scenario...

subsidies and ‘other fmancial,incentives

with no property’ man- ‘.

legislation.

Ontario to

agement costs in the future. The pros and.

stimulate

cons will be discussed

companies with pollution abatement, ,and

paper.

further

in this

protect

The very expression

“tax’expendi-

ture”, however, is perhaps a misnomer in’ this case. The.preoccupation

&NGOs‘

with the tax system is predictable, will be fully described essence,

in. this paper. In

when a philanthropist

charitable.donation,

and

makes a

he or she usually

gets.a usable tax receipt commensurate with the value of the gift; but when a person makes a charitable donation of green space, the usable portion of the receipt is (a) reined in &d (b) eroded by “deemed ,capital gains” [‘he deemed to receive proceeds of disposition when in fact he has received nothing’]. Thanks to these two

state, but’ may be forced to-sell’to ‘devel-

resource farmlands,

development,.

but not to conserve _

‘natural’areas for non-economic (Swaigen 1979). In 1984, the“respected Wolfe

Goodman,

assist

reasons”

tax expert

in an article

in the

said that legislation

Philanthropist,

‘:, removethe deterrents from tax treatment of gifts of property “must be given the highest

priority”;

he. emphasiied, :

“. . ; the focus

on tax is prompted not by the desire to.-

intkoduce a new tax expenditure, but to halt the eksting punitive tax fictidns affecting erivironmental philanthropy?

artifices, the usable receipts for donations of green space are almost never commens&ate with the value of the gift, and sometimes are obliterated altogether. The preoccupation of NGQs has therefore focused on the existing policy where,by these receipts are being pushed to artiticially low levels.’ The intent of the NGOs is not to introduce a new “tax incentive.“, or other artifice, but (on the contrary) to return the tax system to a’ treatment of donations that corres$onds more closely to .reality. In short, the’ focus on tax is prompted not by’ the desire to introduce a new tax expenditure,’ but to halt, the existing punitive tax. fictions affecting environmental philanthropy.

Thkoncqn

of NGO~.

Over a do&n years ago, JohnSwaigen in the book entitled Pre&e~ving Natural Areas published the- following view: “Tax relief or other fmancial incentives should

‘:

however, that this had not already occurred because “there is serious opposition to this propos?l in the senior levels of the. federal Department of Finance”. This view acquire-d more ‘urgency in the lead-up to the Green PZari. Unless a better economic deal could be fbrmulated .to

‘.

set aside ecologically sensitive lands (i.e. via the tax system), the national objectives outlined in the Green Plan would be expected to fail; This theme was repeated by the NGOs during the lead-up consultations

3 _

publication of the Green Plan. In August 1996, ,for example, at the Green Plan consultations National Wrap-up Session (in&ding representatives from the oil industry, .forestry-mining and agriculture sectors, environmental groups, and business associaCons). a call was made for “release (of) a . Green Paper on economic instruments, _.

. \ ‘-

inclttding tax measures.?’ Another group. involved In the formal consultations ret-

The Sustaining Wetlands’ Forum (1990) which brought together many

ommended “fiscal measures to encourage of

important environmental NGOs, adopted a formal recommendation: “Use of the tax

These were not the only views of the

system’to compensate for conservation ” and protection of wetlands should be.

behavioural

change”..(Government

Canada’1990b). business expressed.

community related

CA .Maghzine designed

that -have been

Crowe (,1991) in an article in’ that: “incentives

to encourage

.environmental-.

of the

and

ly a minority point ‘of view.. Once the use

1990’- Explanatory Notes).

of tax policy is accepted,

; In the report entitled Reflections on Sustainable Planning, The Canadian Institute of Planners (1990) has also insisted that “sustainable planning needs at least .’ types of fiscal mechanisms. ” In October SIX

it is inevitable

effort necessary

The

officials-endorsed Canadian

a similar

Environmental

(CEA.C) (1991),

report entitled A Protected

Are&

and

‘Achievement

Visions

of Enviro’nmental

Objectives (Environment Canada l&39), the federal government itself articulated the view that: “A number of opportuni‘ties’exist to use tax instruments to influence.‘decisions which affect the environment. These include... modifications to current : tax instruments involving the

conditions -of write-off for investments in conservation.. . I’ .

6. Environment 713upply

Canada

and Services

and Conimunications Canada

(1992);

in Canada” (Sustaining

Wetlands

Forum

.’

.1990, another broad cross-section of NGOs repeated the call to “reduce the inequities e.g. m the tax treatment of donations; par-

titularly the .capital gains implications. ‘16

in its.

.. for Canada, referred to “partnership” .with the%.,private sector and the need for ’ the’ private sector to participate in the acquisition and protection of lands. CEAC further recommended additional tax credits’ for donatibns of lands. . : “In .F@deral Etonom’ic Instrgments

conservation

Capitai g&ns’regulations

‘.

Advisory Council

friendly.

(land) must be changed to. reflect the same advantages, given cultural property

: view;

. .

’

ronmental

should be

income tax treatment of natural property.

bution to the collective

-4

and disincentives

removed”. The Forum’s background doc-

premise... by arguing that tax should not be used. to further social policy.’ While I am sympathetic to this position, it must be acknowledged that it is almost. certain-

.to solve ‘environmental problems.” The fedefal government’s own envi-

.’ .

‘. conservation;

federal tax regulations r&e

“There will be

the merits

-wetland

issue.” Crowe ‘continued:

that. pressure will build for government to : provide extra iecentives for individuals and corporations to increase their contri- ‘-

showld be, used to encourage

umentation. was even m,ore.specificf “Consideration must be given to making

who ‘question

‘.

explored.” The Forum added: “Incentives

protection have not kept pace with the increase in public concern about this -those

December

,199.l;

the

Royal

Cornmission on the -Future of the: Lake &tario. Waterfront (i.e: the Crombie Commission). is&d the followirig important..recommendation: :‘The federal government ,should introduce appropriate. legislation for amendments to permit-sigr&cant ‘lands, or interests in lands, to be donated to qualified organizations without triggering

capital gains’ assessments,

and to.permit the use of a tax credit up.to the full value of the: donation.“’ On December 2, 1991 a Committee was also asked ‘tax treatment of gifts. This a presentation on this

Parliamentary to revisit the. writer made subject to

.’

f -

‘.

;

the’ Parlbamentary Comm’ittee 04’ Communications and Culture at that time. it was argued: “That the income tax

,. Canada

Recommend&on ..

system should be .streamlined in order to: 1 (a) simplify the-treatment

of gifts. of prop-

erty; (b) to assure that Canadians are not

In’the

penalized for such gifts, and (c) to create-

,sums in question are very significant. The . same cannot be said of other tax -levels.

a favourable climate for philanthropy.” This is the essence of Recommendation No. 8 presented The- Committee Finance. *

.OtRer Tax levels .

later in this gaper.

responded

Canada to comment.

.by asking. Finance.

case of the Income

The incremental

Tax ,Act, the

monetary value of prop-

erty tax incentives for wildlife areas is relatively modest. However,

&hen dealing

with taxpayers -who, are being asked to

Canada’s answer was issued on January

participate

24, 1992 ia the form of a written ,opinion

tally, sensitive

prepared at Finance Canada for signature by the Minister of Finance. It outlined the

the tax system can be as important as the actual monetary values themselves. Even

concerns

whe,re tax incentives

which would have to be over-

t .

in the protection

of ecologi-

lands, the perception.

come before Canadians could expect fis-

very existence

cal change in this area. Those challenges, ‘along with the,. arguments’to overcome

and psychological

are-modest,

.of

their

may have at least symbolic value in bringing prop-

erty-owners “on side”.

them, are outlined later in this paper. .

_‘. General : .‘.

The. Income

Tax Adt -affects every dona-

tion of land.to government or a charity. It also affects many other transactions that relate:& the setting aside of ecologically sensitive lands for posterity. Two areas are of particular significance to this endeavour: the tax treatment of gifts, and the tax treatment of protective measures other

than gifts (notably’ conservation

covenants/ easements).

Giftsof Real Estate . Basic

pm&ipks

free to donate it to the public sector. or to a charity. Donations tend to fall into two main categories. There- are donations to the Crown (i.e. the federal or provincial govertiment), and donations to municipalities and registered .. .tions.’ These two distinction’ .between later in this paper Table 1.

to a tax cre.dit,, whereas’. those by corporations give rise to a deduction from taxable income. The relevant sections

of the Income

Tax

Act. are ~110 and 118.1; det.ailed .explanations of

‘~~~e~e~~~l.~~i,~t~n~d

.. Obviously, a Canadian who is committed to the protection of his or her property is

.’

In addition, the Incoine Tax-Act distinguisheq between donations made by individuals, and those made by corporations. Donations by individuals give rise,

charitable organizacategories, and the ‘them, as discussed are summarized in _

8. Only charitable organizatkms officially registered by Revenue Canada are discussed in this paper under the term “clmities”. . .

notably Cah@ian Taxation of Charities and Dbnatiok, 9 The philanthropic ten-

TheIncomeTaxAct: and.Ecoldgically ’

Sensitive

Lands 5 ”

.’

‘.dencies of Canadians (and occasional lack thereof) have been moriitoreci in a number of studies. Although it is not the purpose of this paper to analyze thos.e,

. ..

.tendencies,, one may nevertheless observe that donations of cultural property (e.g; ‘art or archival..material) are sub-

stantially more prevalent than donations .

9. Drache (1990), pacticu&y

chapter

.. ...

12.

: ’

: . .

: ..

;

of real estate. Part of the reason is that in

then the fictitious

addition to the sections referred to above,

does not normally

the Income

Tax Act also .provides a dis-

tinct tax’ treatment’ to donations of “certified cultural

property”:

As.‘explained

(i.e. property used or potentially intend-.

held for speculative

in any donation

property

such- as woodlots,

or real estate

million-dollar wetland complex, he or she is deemed to receive one, million dollars (I&ache

1990).

as “capital

upon the improvements

fiction whereby. any donation is considered a disposition at fair market. value. In

in proceeds

or real estate

purposes.

When

gains”.. The

,some co.mplex mathematics,

The lizcome. Tax AC; provides for a legal

donates

The conse-

depending

that may have.

.been mad,e.,to’ the property factors. For example;.let

and other .

us take the case of

some’ wooded land held for speculative purposes since 1971 (the taxation of capit&gains came into existence at that time)., Let us further

suppose

that the

quences of this legal fiction can be sub stantial. This deemed income has no tax .consequences so long. as the property in

land was then valued at $100 000, and would today be valued at $1 000 000.. Broadly .speaking,, the .donation of this

--question was not investment property. For example, if it was pro,perty which was not.intended to produce income (i.e.-

land would trigger a $900.0?0 deemed capitalgain. Since 75% of ‘capital gains are

all or part of one’s personal residence), ... . : ‘_

This would be

amount of the capital ‘gain is. subject

Capital G&i& on Llgnated Property

other words, when a person

income).

disposed of, the profit on disposition can be construed

’

ed to produce

property held for investment purposes is

heid for

speculative. purposes.

The. situation is different If the

the case of farm property

particularly

disposition

one’s taxable

donated property was “capital property”

tant;

farm property,

enter

later, these donations are exempt from capit;‘al gains. That feature can be imporinvestment

income.

proceeds

assimilated to normal taxable they are taxed as such.

.a ,

income,

‘. .

: of gift (downward) to optimize. re&ip! in relation to capital

Same as above

Tabb

I: Gifts of Real Estate

‘. .

I. :

& best, ‘!deemed capital gains” encroach upon a taxpayer’s normai cabi:

year, the usable portion.of

ta1 gains exemption. Individuals have. a normal capital gains exemption of.

income in that year. In other. words,’ a donation to the Crown can be used to off-

$100 OW(i.e. the.first $100 000 of capital

set loo%, of the donor’s taxable income

gains is not taxable).. In the case of capital

$500 .OOO.This means that if a person makes a gift of capital property to charity, the deemed capital gain may not trigger immediate capital gains tax; on the other hand, for every‘. dollar of deemed capital

for a maximum period of six years. It also follovvs that ‘if the value of the gift were larger than the donor’s income over those six years, the balance would “go to waste”. For example,.let us envisage ,a male farmer who was making $50 000 in the year of his retirememand anticipated making $29. 000 per year ‘in

gain resulting from the gift, there could

subsequent years, .the following Would be

be a resulting increase in taxable capital gains elsewhere .in the philanthropist’s estate, if that philanthropist is reasonably wealthy and has significant holdings of

the limit of the usable tax receipt in the

gains which occurred on a “qualifying farm ,property” j the relevamexemption is

stocks and bonds aside from his or her landholdings: The situation is worse for corporations: they have no capital gains ,exempr-9-

tions. It therefore-follows that any deemed capital gains invariably produce deemed capital gains tax.~

again limited

the receipt is

to the taxpayer’s

event. that he wished to donate the farm ‘. to the .MiniStry of Agriculture. Leaving aside the capital gains’ factor for a moment, his usable receipt would cover ,$50 000 for the year of the donation, and $20 00,O for each of the five subsequent years, for a maximum $110 006. If the r: farm were worth more than $110 000 -at. the time he made the donation, the extra amount would be unusable for tax In the .case of+donations to charity or

.R&eipts for Donations

’

to a municipality, the ceilings are substan-

As a quid pro quo to a bona’ fide

dona:

tion to governmetits or charities, the can receive a receiut from the L

donee, and this receipt can be used to off-. set taxable income, either. in the form of a tax. credit (for individuals) or a deduction (for .corporations).

receipt pur@oses.

donor

taxable

However,

there are.

ceilings on the extent .to which..these receipts’can be used. In the case of a donation to the Crown (federal or provincial), the usable portion of a receipt can- : not exceed the ‘donor’s taxable income in any one year; ‘in other words, the donor cannot,, use his/her receipt to put oneself in a loss position. Any unused portion of ‘the receipt can be carried forward for up : to five subsequent years; ‘bui in each such

‘tially lower. In these cases, the donor’s receipt cannot offset more than 20%. of his/her taxable income in the year of the ‘donation;- the unused, portion can be carried forward for five subsequent

years,.

but in each subsequent year the usable portion is again limited .to 20% of’the tax- _ payer’s income in that year. For example, if we were to return to the scenario of the retiring farmer, Who earns $50 000 in the year of the donation and $20 009 per year thereafter, his usable .tax receipt (leaving aside capital gains) would be limited to $10 000 in .the year of the donatjon, and $4 000 for each of the five subsequent years; in other words, the total ‘usable receipt would be $30 000.

. .

. ,.

@.m&tive

tion. Predictably, this situation has led ‘to

Eflectis.

The above scenario illustrates that in the : case of investment property,. substantial taxes can be triggered by a donation, but there are limits on the extent to which

varied attempts to define ways in which donors could get a taxtreatment ‘more closely related to the actual value of their

these extra taxes can be offset by the tax ’

receipts involved.

This leads to some unusual scenarios. In t.he case of property nor lield.for .-,investment

purposes,

the donor ,:can use

his or her- tax receipt

subject

to the

applicable -ceilings; but for donations in.vestment

property

(including

of.

most

potential dohations of significant real estate holdingsj, the donor could actually fmd himself or herself with a prospective tax liability (resulting from capital gains) which .may actually exceed the receipts claimable. In other words, the taxable capital gains resulting from donations may not .only.erode the value of the receipts, but may even exceed them. As a result, the philanthropist would be’hscally penalized for the gift. The Income Tax Act has therefore introduced a further legal fiction to mitigate this effect. The donor may “elect”’ to dotinvalue the gift, so that the deemed proceeds of disposition ‘do not give rise to so. high a deemed

capital

other words’, the Act legalizes SCiOUS KniSrepreSentatiOn

gain.‘O In the conof a

Of the Value

,gift, .m order to assure that the donor wiil not be penalized for making the .donation to the government or to charity. The rest@ is a fairly elaborate-accounting process whereby the donor’s advisors attempt to determine an optimal figure ,&hich will produce the maximum usable

---8

.. receipt in relation to the lowest. capital gain. That calculation will also be affected : by’the extent to which the donor can still use. his or her capital gains exemptions,

which ‘are usually $100 00.0~for individuals and $500 000 for farm operations. In. many .cases, nonetheless, the: donor’s p&spective .tax benefit will ‘not represent a mathematical equivalent or -quid pro quo. for the value of the dona-

“..‘.the Heritage-Canada, f&&d&ion

and the

Nature Conservancy of Canada... have specific contracts with the Goveknent

of Canada ~which

entitle thfn to receive property ‘in.trust:for the CrC&Xr’.” ,

donations. Another technique exists at the. Heritage Canada ‘Foundation and the Nature Conservancy ofCanada. These

.i*

two organizations have specific -contracts with the Government of Canada.which entitle them to ‘receive property -Yn trust for the Crown”. It follovvs that when a gift of real property is made to the Heritage ‘Canada Foundation “in trust for the C?own”, this gift can receive the same, tax treatment as a gift to the Crown (i.e. a higher ceiling on deductibility); despite, the fact. that the Heritage Canada Foundation is a non-governmental reg&: tered charity.1’ The. Nature Conservancy of Canada has. a comparable

agreement

for donations of land abutting ,national parks. Other organ&ions have sought to do Likewise; ho&ver, unless they can .produce anactual contract indicating that they can’receive

: ..

(

property, in trust or as an

agent of the Crown, this tax treatment .will be unavailable. That is what ‘oneorganiiation learned when it thought th.at it had received property in the capacity of agent of the Crown, only to. see its anticipated tax, treatment disallowed by the .courts (on application by RevenueCanada) .when it failed to produce documentary evidence of &relationship the :CroWn.12

with

.’ I

’

r 10. S:llS.l(6)oftbe,Act. “It would appear that a registered charity cquld be specially empowered to receive gifts in trust for Her Majesty, and :. 11.

The-&H

Canadian~Master

Tim

Guide

1991

notes:

such gifts wouid tiien be exempt from the 20%;limitation. It is understood that this is thccase with Heritage Canada See CCH Fpundation which is a registered charity”. Canadian Ltd. (19911, s. 9185, p. 449. 12. Murdochv.M.N,R., [1979]C.T.C. 2184,79D.T.C. 206. :

Another tax approach exists via the Cultural Property Export and Import

Revenue Canada returned to. the original rationale: although buildings could theo-

Act. That federal statute provides for certain property to be designated as “certi-

retically be exported and reassembled, a natural landscape or habitat could not (at

fied cultural property” by the Cultural Property Export and Import Commission;

least in specie).

it also provides for certain institutions in Canada (including registered charities) to

Comparison

be designated as “certified cultural institu-

The donation

tions”. There are, at present, some 230 such institutions in Canada. When.a

lands, whether

charity, is obviously not on the same foot-

with Other Gifts

of ecologically to government

or to a

donor makes a gift of ,“certified cultural

ing as a’donation

property” to a “certified cultural institution”, the Income Tax Act not only pro-

under the ‘Cultural Property Export and Import Act. The question is whether this

vides a 100% deductibility ceiling on such gifts (instead of the 20% usually allowed

discrepancy makes sense. Finance Canada, in a’ letter signed by the Minister of Finance in 1992, has argued that the tax treatment of gifts of cultural property should necessarily be

for charities), but also waives the fiction of capital gains. Naturally, this has led to some speculation as to the kind of real estate.which could be treated in this way. Initially, the intent of the Cultural Property Export and Import Act was to deal with property that was potentially exportable; but when that reasoning was raised in the context of a proposed donation of a building in Montreal, it was argued that even buildings are potentially exportable stone

by stone

(like

London

Bridge,

which is in Lake Havasu City) and, hence, should be eligible for this.treatment: In fact, there are heritage buildings in three provinces which have been donated to “certified cultural institutions”, and

of cultural

sensitive

property

considered a model for anything. The Minister signed this letter in response to

discrepancies among various gifts and the tax fictions attached to them.‘” Six conterns were advanced in the letter, and those concerns would have to be overcome before Finance Canada would consider. removing the punitive fictions attached to donations of Canada’s natural ,heritage: (A) There is no reason why the government should bend over backward for transactions undertaken at the taxpayer’s own discretion. The fact that the government provides special

then by Revenue Canada. In the three cases mentioned above,

treatment to donations of cultural property is an historical aberration. 09 In any event, gifts must be kept within “reasonable” levels. (0 If Canada improved. the tax treatment-

Canada also allowed

the land

under the buildings to be assimilated to this tax treatment. The amount of land so treated was the space reasonably required to “seat and serve” the buildings. However, when Revenue Canada was asked to comment on whether pure natural landscape could receive the same tax treatment, the answer was negative.‘j

1% The opinion was sought hy the Cultural Property Export and Import Commission in response to a prosprct~vr donation. Thr details of the request for the opinion have not brrn disclosed.

an enquiry from the Parliamentary Commi,ttee on Communications and Culture concerning the rationale for the

whose tax treatment under this heading has been approved first by the Cultural Property Export and Import Commission,

Revenue

for donations of our natural heritage, that would only set off clamouring by other charities (e.g. in social welfare) for comparable treatment, which the government is disinclined to provide.

14. See Footnotes

Nos. 6 and 7.

(D) Changing the system would be too .

The answer to this-concern is straightforward. ‘Governments: around the

administrativeiy difficult.

(E) These ‘tax receipts benefit only a tiny .. minority of Canadians, (F) There is no evidence to suggest that a significantly

.. wprld

(including

of giv-

tio.ns would result. It is ‘submitted that these concerns

charities.perform functions which would otherwise need to be covered by thiepub-

The

lit sector; these charities

use. donations

@perhaps 40% of which are offset by tax.

‘. &. Why Should Gpvq-nment Provide .,I Better Treatment?

savings) .to do work. which would other wise need to be done with 100% taxpay-

The first policy hurdle to be overcome is

a gratuitous “preference”,

‘whether there is any reason why. the, tax

quo for goods and services actually deliv-

system should encourage more philan-. thropy. Any proposed change in the’ sta-tus quo would first have to address the argument that gifting is the donor’s own affair: ifhe wants -to do it, that’s fine, but

ered for the benefit of the .public interest.

any ,special

tax ‘treatment

;

ers’ dollars. The tax receipt system is not

but a quid pro

, :

“Governments around the world (including the-

he shouldn’t expect Finance Canada or. Revenue Canada to feel any obligation to provide

..-

ing merely as a matter of largesse: it is a matter of economic s’elf-interest. Various

larger number of -dona-

. can indeed .be logically overcome. rationale is discussed below.

the Government

Canada) do not “reward” charitable

‘.

Governmkat of Canadajdo

not,‘reward’ charitable : .givirzg merely as a hatter of largesse: it is a matter

as ‘a

reward. The fact that the tax system now rewards such activity (within limits).is in

: :

of economic self-interest.”

a sense gratuitous: it is a “ta2 preference” which the government grants excefjtionally. Since this is. a gratuitous “preference”, the government is under’no obligation to make those preferences’ consistent: the fact that government chooses

to forego legitimate

n&cent of disreputable tax incentives like

one area is no reason .to compel government to forego income in any other,area. Finance Canada has stated that “The. tax deduction or credit for charitable

the late Scientific Research Tax Credits (SRTCs), wherein Canadians spent money (allegedly) merely.to take advantage of the tax benefits. That concern is mis-

donations is unusual in that it is in respect of expenditures made at a taxpayer’s discretion. Usually, a credit or deduc-. tion. is only allowed in respect of expenses incurred to earn income.“15 The scope. of this exception is not to be dealt with lightly because,. as the

piaced, in the case of charitable donations of ecologically sensitive land. There is simply no evidence that Canadians are lined up to give their -property away or

Department

income

The- expressions “tax benefit” and “tax preference” also have a misleading .’ connotation - the phraseology is remi-

added, “all tax preferences

give rise to a loss of government revenues which must be- recouped by other forms. of taxation or reduced expenditures.”

i 15. This view is expressed in a letter datedJanuary 24; 1992 by Finance Canada signed. by the Hoti. Don MazankoWski, to.the Standing Committee on Communications and Culture (Fiiance Canada 1,992).

that -the Government must guard against people encroaching on Revenue Canada’s .

legitimate income by (unethically?) choosing to give too. much of their prop:. ertyaway.

”

..,

jr:

.Goodman (1984) already answered’ that concern: ‘;Qur tax system .does not :

the exception in paragraph 39(1)(I.l). If, for example, an in$vidual iti a 50% tax

permit a.person t9 be better off financial-

bracket

ly through making a gift to charity: In the

$10 OOO.in 1972 and if he gives it to’ a

ordinary

bracket who gives $1 000 to chari& will

public gallery in 1984, when it is. worth $100 000, he receivesxa tax deduction

: be out’ of pocket $500, just aS if lie had

worth $50 000 .to him, which covers his

case,

a person

:In a 50% tax

laid’ out- $1 000 for some expense which is deductible

item

for income tax purl ..

poses.. No one would suggest that a taxpayer

would

be- prepared

to’lay

out’

‘. $1 000 for such an -expense item merely

‘.

a -painting

for

.’

$10 000 cost. and gives .him a cash profit of $40 00.0. This is-probably as it. should. be, since it must not be forgotten that ‘he has’ptirted with something

that really is

worth $100 000. Jt seems unreasonable

becatise the payment was deductible for

to subject him to the full rigours of para-

tax purposes. Why, then, should anyone think that a taxpayer wquld make a chari-

graph 69(lj(b),

table con&ibution, merely to. take advantage of its deductibility?‘!

$2 506 after he has made a: gift of a $100 000 painting to a charity:‘?

In any e;ent, say some objectors, donations of cultural l&ope* c&dt be

B. The Limits of R&konableness

consjdered

so <hat he winds up, at,

best, with a net tax deducti+

,a model because they are ah

The 20% ceil,ing on tax receipts for donations to charity, says Finance tanada, is. required t0 keep charitable dedu&ons

erty is the product of a uriique history, is.. tied- to the portable nature of ‘such prop-

within reason: “The 20 percent limitation serves- to restrict the amount of ‘the tix

erty, and is iniegrally. linked to the treatment of such property under the

preference for ,charitable donations to B -reasonable level” (Finance Canada 1992).

provisions

of the- Cultural

and Import

.Projerty

Act. This .regime is

’ This comment pers@e&ve

reflects

a highly unusual

on philanthropy.

Finance

not an appropriate .model for other prop-

Canada appearsJo

e’rty” (Finance Canada 1492). However, what is SOwrong with the

tiop in Canada to suggest that altruism needs to be reined.&.

tax treatment of gifts under the Cultural Property. Export and &port Act? Their. ‘treatment is not unfair to Revenue Canada. Goodman (1984) again explains: “The e&ption

to which I have alluded

arises under the Cultural Property Expbrt and Import Act,. under which the fair market v&e of sifts of qualified cultural propeizy to a designated institution are fully deductible from income under paragraph 110 (l)(b)(l) of the Ifzcome Tax Ah. If such gifts are capital property, whose fair market value exceeds their adjusted cost ,base,’ this appreciation in .i value is not regarded as a capital gain under- paragraph 69(l)(b) by reason of-’

of only

historical aberration. “Tee rdgime in place.for gifts of moveable cult&-al prop-

Export

purchased

’

be the only organiza-.

.’ . ~,

“The 20% ceiling on tax receipts for donations to charit$’ says Finance Canada; “is required td jzeep.&aritable

deductions within reason.”

il /

One may note, in passieg, that there is no commensurate limit on deductible business spending, as there is. on chariti ble @&ding.- Apparently, there is 99 car-’ responding urgency for ..keeping those ! expenditures within “reasonable levels”.

”

The Sustaining Wetlands Forum (1990) presumadly alluded to this when it called .* _’

: I

,’

‘.

for a tax treatment of donations on “the

D. Administration

same tax footing (i.e. on a level playing

When the Government set .up the appara-

field) that is now. available to the corpo: rate sector” :I6

tus to deal with, gifts of cultural property

..’ C. Favouritism Donations ’ :

.plicated. For example, the donation itself

to cultural

institutions

are

must

be -approved

by the

’the donee institution must, have received

pie, a .person who proposed to donate an office building to the Canadian Cancer

detailed

an extra

“certification”

extended

of ecologically

One concern

to the Montreal

are .

is that if the tax system

comparable

treatment

sensitive property,

to gifts

‘.

“Such

proposals would require a. cumbersome ‘. legislative and admipisfrative regime” ‘. (Finance Canada 1992).

c&n: would assimilating even further donations to the”preferentiai” category. the potential

and’ there

rules’ applied to the appraisal.

an historic

merely compound

‘.

Property Export and Import Commission;,

Society or a hall to the YMC+4 would not be in as good a position as the donor of building

Cultural

already on a better footing than,. say,. donations. to the United Way. For exam-

Museum of Fine Arts This causes a con-

resent-

ment_ felt by the charities left out? “It is-

Fortunately;that

concern may .be mis...

placed, and for a simple-reason. The rationale for the complex apparatus related to .cultural property was largely that much cultural property. is notoriously difficult. to appraise ,(even. experts’ appraisals of

difficult to justify singling out gifts of certain capital properties to specified organizations as deserving a more preferential tax treatment than gifts to other orgamzations.. Extending preferential treatment to

under the. Cultural Property Export and Import Act, it made- that’ apparatus corn-

Old Masters, for example, can be millions of .dollars apart)., This left ‘open the .possi-

heritage ‘properties”over, for example, gifts of rash or land to’ charitable organizations involved in aiding the.‘homeless

bility of abuse. in the system. Similar discrepancies are not usually found in the

or’feeding the poor.may be unacceptable to m.any. Canadians‘who may believe

appraisal

of real

estate,

and hence

need for highly ‘elaborate .safeguards . not comparable. .

that. the latter causes are as worthy o-f assistance as the former” (Finance’-.

the is

.’ . E; Non-Progressivity Canada 1792). That,. reasoning starts from the one longstanding concern, respecting .. premise that other charities will need to .. any improvement in the. tax treatment of be kept .m a disadvantaged position.’ The gifts, is that such a measure,.would just counter-argument is simple: if it is unfair help line the pockets of an (already-rich) for “deemed capital .gains” and other fea12

.’

minority. “Such, proposed changes would be of benefit to a restricted number of

tures to ‘encroach upon charimble receipts for one kind of donation, it.taxpayers, and would’ merely serve to ‘should be equally unfair for them’all. ‘. enrich an existing tax benefit” (Finance There ‘is no a priori .policy reason why Canada 1992); environmental donations should continue That, however, is the nature: of Phil-, being hamstrung, simply because equally ‘anthropy: sigmficant gifts come only from. worthy donations. are also being .hampeople who have. the resources to give. strung (i.e. misery loves,company). them away, This is a truism, as is’ the

‘,

,, ‘. :

. . . proposition that million-dollar gifts .oniy -’ come.from millionaires (iie. they had to

_’

.i :. :

16. Sustaining

Wetlands

Eorum (1990X p. 15.

”

:: ., . .I

‘

, own ‘a million before

worth.of

assets.

‘tive tax features of his ‘prospective

gift;

That ,hardly

but also .about .the negative tax features.,... which might even wipe out the positive

means, however’, that Canadians who are

ones. Can it be seriously argued that such

altruistically inclined toward the environ-

“advice never has effects? And even if this

dollars’ .

dollars’

they could give away a million worth

of assets).

ment are plutocrats. ‘fact remains

that these individuals

actually divesting specifically

Fu.rthermore,-the,‘-

themselves

results in only a few ,1&t donations

are

of assets-,

for the public good. This is they are less rich after the

_ ._

‘.

“It is, therefore, misconceived to argue that bettertax .I

treatkent

treatment

minority,

will only “benefit” an already

per

.’ ’

transaction than before. It is, .therefore, misconceived ‘to argue that better tax privileged minority. .The question.is whether :the Government is prepared -to favour.such divestitures or not. ,

will -only ‘befaefit?a&‘~ah-e~~ypriviieged ms

question

is w&&her

prepared to favour such divktitures

the Gove&hent

or not.”

F. No Impact One of the most familiar concerns of tax officials is whether a given tax change would cause a dramatic outflow of funds .from the treasury, without.any co&espending benefit elsewhere in soci,ety. That concern has also been expressed in the context .of gifts of ecologically sensi., tive property.““There is little empirical evidence

to..demonstrate

that enhancing

the tax benefit associated with. a particu- 1 lar type of charitable donation will,, of itself, result’in an increase in that type of donation” (Finance Canada 1992). Admittedly, there are no Gallup Polls indicating the .extent of likely “pickup” on an improved’tax treatment for donations of ecologically sensitive land. No one, to this writer’s knowledge, has ever commissioned ‘such a poll. But by the same token, there are also no polls suggesting that .there would be a failure (in pickup in donations) either.

Options under~Co&idet-ation

Revenue Canada is the silent partner of every Canadian who earns income or sells ’ goods. .The Department has a stake in virtually every transaction. Revenue Canada takes it.s lead. from -Finance Canada; no two other governmentagencies,have anything close to ,such a level ofintervention . in the daily lives of Canadians. Their role, in the pursuit’of

national goals, must be

viewed accordingly. ‘. The Prime Minister, speaking in April 1990, expressed the’ following view:“Restoring our own habitat has to be everyone.‘s

first priority

and restoring

wetlands is a vital part of,it... we need to understand the intolerable’ cost of’ neglect. There is no room for anyone on .. ‘the sidelines. None’of us can sit.this one out”. (Sustaining Wetlands Forum 1990). An initiative in which the two most i.nflu&tial national bureaucracies are exempt

In view of the lack of ,“empirical-evi-

would not be a “national initia-

the issue’

t&e”. Furthermore, the Canadian public is

shou1d.b.e approached on the basis of common sense, ,At present, any prospective donor who consults his accountant is

unlikely ro accept rhetoric -delivered to the private sector which is. inapplicable. to the government itself.

dence” one way or the..other,

bound to be toid not only about the posi-. :

year; aren’t those already a few too many?

not a net “benefit”: even with imp&wed tax tieatment,

‘.

. : .’

‘.

4s the Prime

Minister

“Mak.e no mistake

continued,.

asking Canadians to.make sacrifices:’ Partnership is the key to success of this initiative. .. For our part v&e will commit

a manner that makes the public sector a model environmental citizen - and an example to. the private sector” (Sustaining Wetlands Forum 1990). Tax officials, : .

by necessary

implica-

tion, must be part of that .“model.environ,mental citizen” who is prepared to make sacrifices in the name of environmental partnership . The- two fundamental irritants that environmentalists have identified in the (‘. system are the following: .

The very notion that an altruistic Canadian who gives away his property for the riational good should be saddled witli a legal’fiction which attributes to him a “deemed capital gain”; and

. .The very notion that the ta,xdeductible value of such a gift needs to be reined in to ‘reasonable levels”. There is no valid policy reason why charitable expenses ed less favourably expenditures, limitation.

14’

which

should be treatthan business face no such

other charities

are.

hamstrung; Dont complicate the system.. >

No giveaways to the rich; and ’ m It won’t work.

ourselves to managing the government in

.’

Environmental charities must be hamstrung because

about it; we will be

paper. ?+u-thermore,

one precedent

has.

. been .estabiished, .namely ,that .of donations. of cultural property. Those -donations respect the two policy objectives outlined above: .

There is no deemed’capital offset the-receipt;

gain to

and *.

L There is a mo.re,reasonable ceiling on’ the amount which can be deducted (100%. of income j rather than 20%).

culfural donations is an historical aberration (which is a model for nothing), there is no other course that withstands logical

. ‘Charity reason”;

‘.

must

kept

scrutiny. It is always’ conceivable, of course, that a tax measure could. be devised along these lines, adopting a different formulation from that.of .the gifts of cultural property. However, this &-iter can see no immediate utility in developing a sui

gifts of Canada’s natural heritage should

Government need., no-t discretionary spending;

.*, ._

Notwithstanding the ‘objections. outlined inthe Finance Canada letter of January 24th, .1992 (Finance:Canada 1992), arguing.’ that this taxtreatment of

In opposition’ to these ‘statements

generis formula; that would merely cornplicate the ‘tax system .even further. It is submitted that there’ is virtue in consistency, and that a gift is a gift is a gift. For

principle, various concerns have traditionally been raised in favour of the status quo: ..

Those challenges can ,a11be logically overcome as have .been described in this

These are statements of.basic principle. Environmentalists have been arguing for over twelve years that a country w,hich is incapable of acknowledging these two fundamental precepts is suffermg from basic flaws in its tax ,system. : of

‘.

that reason, this paper recommends be put on a ‘footing identical Canada’s cultural heritage.

, ..

that

to gifts .of .I

reward .f’&ithin .

R&wmmendations

For the reasons

’

outlined,above,.

this

paper submits three recommendations: Recommendation

I: The. legal .fic-

No.

tion which attributes deemed. capital gains (and.potentiaI

capital gains, tax)

to donations of ecologically sensitive real estate,should be abolished. No. 2: The ceiling on

Recomhendation

.”

deductible

charitable

(20% of income)

expenditures

should .be lifted.

Business expenditures

have no such

ceiling; and there is no I&zyreason ,why altruistic donations should be treatedless

favourably than business

expenditures.

If the Government

Canada insists. on retaining a ceiling, then the ceiling should be the same as in the case of. donations. to seniar . .

governments (100% of income). Recommendation No. 3: The tax treatmerit .of donations of Canada’s natu,ral heritage should be no .worse than. that now enjoyed

by donations

Canada’s cultural heritage.

Conservation

Coknants

and Easements

produced

a . publication

an admirabie

profile

that of this

gives device

(Trombetti and C&1990). Most agreements -are simple

con-

tracts: they bind the signatories, but they -do not .bind anyone else.”

Fortunately, a

.special.form

is possible to

of agreement

deal with that problem. me&

or “restrictive

Called an “ease-

covenant”,

it binds

future

owners. as well as the present

owner.

Restrictive

covenants

and ease-

ments are specific ‘species of contracts in Anglo-Canadian Common Law which have been recognized- as distinct from other contracts, ever since the Middle Ages. la In Quebec, the Civil Code has recogniLed- a comparable .mechanism called “servitudes”. The land which is the subject of the -,agreement is called the ‘.servient .tenement” _ An easement or covenant can cover .a variety of subjects. The best-known example is a right of to interfere with the passage of someone else over his/her land. Similarly, anowner of land can enter into an agreement not to cut, wood, backfill or pollute the wetland, etc. This is the kind of. agreement that interests conservationists.

There

is a role ‘for private contracts’in &&o$ng controls on worthwhile.land-

As noted .above, most agree,ments’ do not bind future owners. That is where

scapes,

both easements and restrictive

sensitive

areas, or

‘

way, where .the owner of land agrees not

Basic Principles

ecologically

c0venant.s

heritage property. If a proprietor is willing to subject his. property to controls’ on tampering, it is possible to sign a private agreement with him or her to that effect. This contract allows the property .owner

have a crucial characteristic which distmguishes’them from other contracts: both.

to commit himself ‘or herself (and his or her heirs and assigns) to the protection of the property without actually relinquish-’ ing title to it. Wildlife Habitat Canada has

tered at the .local land titles office, That constitutes public .notice and binds future owners. It is this ability that .is interesting and which these two kinds’of contracts

can bind future owners. Valid easements andcovenants. are considered “registrable interests”, i.e. contracts that can be regis-

‘

have in common.

1,.

,,L

“‘IDlC

,U,C(

‘XL

~“,IIIkI”kI

“W,

LLLPL

LVllllPCILI

‘.I\

privtite agreements which affect only the.,sjgnatoriep. This principle is called ‘:privity of contract.“‘Consequently, ifan owner agrees to protect his property against destruction and later,sells the property, the agreement would usually not be binding upon the future owner, and the property would, hence, be exposed to whatever the new owner had in mind. Conservationists would find this situation unsatisfactory in the majority of situations. 18. Technically, an -“basement” refers to an agreement which allows someone else to do something on one’s own land (e.g. a right of passage). A “restrictive covenant”, on the other hand, is y agreement whereby someone restricts his own ability to do something on his own land (e.g. -agrees not to backfill lands). It follows &that the agreements

L”L’.L‘L’~L‘TLCU

“,

LLLL

y’“y”“~“L”

“>

C”...,C.

.YL.“L’KC.

..%

“&-

primarily “restrictive covenants”, at least in Anglo-Canadian law. The term “covenant” is also preferable to thq term “easement” when one remembers that to some people, ‘*easement* connotes the right of strangers to cross one’s property (as in the case of Ontario Hydra), when that may &we nothing to do with the proprietor’s wishes. In the United States, however,. a usage developed whereby protective agreements were lumped together under the name “conservation easements”; and for reasons which are not entirely clear, the Ontario.Government has alsd taken to csllino State< and _---_ D thrm .___.__CZXP~P~~S --I_ __.___.-. This _.___IIQVP -___ in_^.the ..._ TInit - .._._ - _.-.._ -..Ontario has influenced the language of conservationists throughout Canada. ,

Every Common introduced

specific

Lay province legislation

the way for conservation covenants

which

and binding

covenants on 71 ObO acres (287 300 .ha) ’ (Weeks 1979). Enabling legislation ‘for

to clear.

easements

and

such .restrictive covenants and easements is to.be found in a, variety of statutes.23

would be registrable

on future

owners

for the

New ‘Zealand’s Reserves Act also provides

prote&ion of certain natural and cultural heritage. Quebec’s, servitudes .can do’like-

for such agreements; refers to comparable

&se.19

in place in-&vitzerland, Netherlands, and Sweden..

The literature

easements” . .

has

has often

on “conservation discussed

the

‘.

. advantages that such agreements have over other arrangements. For example,

I :

...

In Civil Law (e.g.. Quebec), ownership is viewed .,as a whole2*- from .which, . carefully-defined parts can ,be removed. The Common Law, on’t.he contrary, almost’ never refers .to ownership as a “whole” from which tiomponent parts are .removed, but rather as a loose (and ill-defined) composite of. a spectrmn’of

various .rights.. . or, less charitably, what Oliver Cromvyell described as “an ungod-

use; and (v) social disruption is minimized.20 Conservation covenants &id -easements’ have, been used unevenly in Canad.a.*l Public authoritiesin the United

-C&enqats/Eas&mentshervitud~s

.fee simple); 1, (ii) management of the land is provided by the landowner; -. (iii) the land remains on -the municipal tax roll; ’ ‘(iv), the land remains in production or

‘. .

the ‘.

Receipts for Donatgons-of

as follows: (i) ‘initial costs of acquisition (if applica-’

France,’ ‘.

Reid (1988). summarizes these advantages

ble) may be less (than -retention

and, Weeks (1979) ‘agreements being

.’ ly jumble” (Megarry 1975). One may say that the. Civil Law-looks on ownership as . . a single forest; b&ignores the trees, ‘, whereas the Common Law .looks on it as

States have had a-longstanding policy ‘of “purchasing easements” and covenants

.. a number

of trees,

but disregards

the

forest. The significance of calling owner; ..ship a “bundle of rights” is simple. If part

from landowners for various conservationpurposes.22

Among non-governmental ,. organizations, one of the most eminent bodies of experience in this area ‘belongs in the National Trust in Great ‘Britain. By 1979, it had already .acquired protetitive

of those,rights are removed (e.g. by restrictive covenant or .,easement), then. one has (by definition) lost part .of one’s

.’ .

ownership.

I’

I6 .’

19. See Denhez (1978)..__ DD, 605,670 - 674. 20. Reid (198$), pp: 4,13-14, continues: “Landowners who donate conservation easements tend to share several corn-. moth characteristics. Typically, the+ are over 50,.comfortably..well-off, with an income fr0rn.a source other than the Iand in qw&:tion. “Love for the land” is the primary motivakiion for donating an easemebt - 67% of the respondents to the ezement .survey &ted that. as the most impo’rtant fac.tor. @nors.are also-able to use die tax advantages of their donation, which is listed as the only other sig&icant modvating factor. @mom often are not .resident on ‘ihe land under easement; participation by landowners who depend on their landfor their income is very low.” 21. In Ontario, the Ontario Ijeritag& Foundation (OHF) Gas. signed over 140 of these agreements under the ‘Ontario He+zge Act. Other organiiations which were able to circumvent the Common Law hurdles (e.g. by having.nearby land, and by phrasing the obligations in the negative) have eyen been able to use Common Law easements: the Hamilton and Sauble Conservatiori Authorities acauired right-&way easements for die Bruce Trail; .the Otdnabee tid Essex Region Conservation Authorities have used easements concerning water levels; and the Brpce Trail Association has.purchased land with the intention of reselling same with easements attached. The ?HF agreements include “protective provisions (which) are written relatively loosely, requiring 0H.F approval for,, rather’ than prohibiting outright many activities. These approval provisions are used often, with an average .of otie to two requests received per week? (Reid 1988, p. 10). 22. Tht Utiited States’Fish and Wildliie’Service, for exam~fe: has “bon&t dver 21,000 easements covering 1.2 miliion acres of-prairie pothoie,wetlands.” The traditional

I .:.

rationale is. that this albws protection of -proper&, at a much lower c&t than acq&tion or retentibn bf f&z simple. Howetier, in areas undergoing some development pres sure, United States public authorities had indeed been required to spend considerable amounts of money on these acquisitions. “The Matiqnal Park Service, for eximple, found chat relatively few landowners’ along the Ap@a!achian Trail preferred easements to outright acquisition, and that easements averaged 75% of‘<he cost of the fee (simple) (within a range of 25.29%)” (Reid 1985, p. 15). Reid goes on .to state,that easements over wetlands in the. Otdnabee Region cost 25% of fee simple; at Hillman Creek Marsh in Essex, they cost 90% of fee simple; trail easements along the Bruce: Trail tended to be evaluated at 45% of fee simple in one area, and ,15-25% in another. Reid adds, “Cost of (natural) conservation easements in the United States vary widely, but figures in the range of 30.60% are common ..where public access is not included.” (F$id 1988, pp. 20-21). 23. For example, the Ancie,nt. Monuments. in Ar@aeological Areas Act, United Kingdom (1979 c.46, $.‘16.). 24. “O+m&ship is the,right of enjoying and disposing of things in the .most absolute mannei.,.” (Art. 406 bf the Quebec Civil Code). Those pre-determined components, which cafe be hived out of the basic principle called “ownership”, are defined hi Book Second of the Quebec Civil C&e. Although attempts have occurred to undermine the rigidity of this system, such as the controversial caie of Matamajaw Satmqn Club v. Duirhaine [19211 2,A.C. 476,. these have tended to be resisted as an encroachment on the logic of the system.

,’

‘.

This loss can be .appraised economi-

issue

a tax

receipt

based

that

tally. In fact, it:is trite to observe that this

‘appraisal.” Reid added that “the. droce:

is done in property tax assessment every day, in every jurisdiction’in Canada.

-dure for donated ‘identical”.

Registered covenants province

easements

-’

would be

‘.

easements .and restrictive play a, role in every and territory’s

assessment

statute: assessors are indeed directed to take them into account in comput.

ing the municipaltax

base,25

That then gives rise to the fol-. lowing question: if disposal of a part of one’s .property rights can have .a certifiable

value for -other legal pur-

poses, why can’t it,receive comparable treatment under,the Income Tax -( Act? In other words, if an altruistic .. individual enters into a registerep restrictive covenant or easement ‘wjth a government or a registered charity, why can’t the value of that transaction be professionally appraised, and give rise to a tax receipt accordingly? Virtually every writer on the subject in Canada has assumed that it would.

That opinion is consistent with what the ~~ourts have held in other jurisdictions as

Wetkmds are ecologically sensitive areas for migratov waterfowl across Canada.

‘The Environmental

Law Centre

described below. As early as 1974; Silverstone’” postulated, with total confi-

Alberta issued its own summary (Tingley ‘et al. 1986). of the .situation: “In -donating

dencq, that “a landowner can donate a conservation easement..;to either a conservation organiiation with charitable status under the ‘Act or the municipality in ; which the property is located. . ..In either, situation, the donor.(servient tenement) is entitled to deduct the value of the gift for income tax purposes... similarly, the

an easement, the taxpayer gives alcharity or the.Crown a partial interest in his property, while at the same time retaining legal title and the right to use the property subjecf only to the easement. With such gifts,

1 donation can be made to the Crown with ’ even greater deductions permitted on the. part of the donor” (Reid 1988). For his part; Reid observed that in the case of

plewould have certain value, it would not have a value equal to the fair market value of the taxpayer’s entire interest in the real property:. In this case, the. initial difficulty

donations of property, “normal.(Ontario Heritage) Foundation practice... ‘is to commission an independent appraisal (the cost of which .may be shared, depending on circumstances), and to

for the taxpayer will ‘be determining the value of the gift made and hence the

;

’

. I

amount of the donation and the proceeds of,disposition. .; _ .

. Forexample, the Asstissment Act of Ontario: “Where an ealsement is appurtenant to any land, it shall be assessedin connection with and as pat of the ltid at the added value it gives to the land as, the dominant tenknent, and the .I assessment of theknd that, as the servient tenemeht, is subject to the easement shall tie reduced accordingly @.8(l)). Furthermore, “g restrictive ckwenant running with the land shall be deemed to be an easeqent-within the

; ‘.

the major issue- becomes the value of the interest of the proderty donated by the taxpayer. While a gift of less than fee sim-

.. 25.

“.

meaning of this sectlon.” &S(3)). The Municipal Act, S.$12(3), has simi@r results. The chaknge with this wording, of course, is that it assumes that there! is a dominant tknement whose. v&es will increase because of theagreement, and hence counterbalance the +zcrease.affecdng the swvient tenement. 26. kid (1988), pp. 121- 124.

It would appear that the value of the donation

would ’ be

the’ difference

between the fair market value of the Iand unencumbered by -the easement and its

value subject to the easement. Proper real estate appraisals

would be essential

establish such values. Difficulties may be .encountered (National)

with the Department Revenue,

Taxation

valuation of a property fee simple.*’ In the United

over the

gift of less,than

States,.the

Internal

Revenue Se-r-vice (IRS) first. ruled on -the deductibility

of an open space ,easement

that

Revenue Canada (1990) lowed suit in its position

has now ‘fol-

correspondence with-the Island Nature Trust of Prince. Edward Island on July’ 13th, 1990: “A restrictive’covenant...

is a

landowner

may register

a restrictive

feited generally include the right to subdi-

of enactments was not an act of “political will”: it was mere1y.a recognition and interpretation of the Common Law (as perceived in the’united States): “A valuable property right having passed to the, United- States, it was n&d that the, tax.payer was entitled to a deduction.:. -The central premise of the ruling.... asked and

be assigned a value equal to .the difference between the property’s value before the restrictive covenant is registered against the landand the,property’s value after the restrictive covenant is registered against the land. ,Our comments regarding

answered the question of whether a v&u- .

your questions are as follows: Subsection 248(l) of the Income Tax Act defines property to include a right. of any kind

able

whatever.

given.

the 1984 ruling rested comfortably on familiar foundations. In the case of a charitable contribution, the questions to be ‘.asked, under general principles are: (1) Isthere .a. transfer of something of value? (2) Is the transfer a gift with the requisite donative intent? (3) Is the transfer to an , organization contributions to which qualiQ for the deduction?.“*”

27. Tingley.et al. (1986) p. 50. continue: ” As an example: assume that the taxpayer’s entire interest in the property has a current fair market value of $500 000, and that the value of the progeny subject to an easement is $200 000. .By placing an easement on the property, the taxpayer would have made a gift of $300 000. The.deductibility of such a gift for income tax purposes (whether to a regis tered charity or the Crown) is the same as (donations of land).” 28. This was. followed in. 1972 by Treas. Reg. l.l70A-7 (b)(ii), which simply restated and interpreted language in the committee report accompanying the TLzx Refom Act of 1969 to the effect that Congress intended that the liniitations on gifts of partial interests in property incorporated in I.R.C. 170 (f) were not intended to apply to gifts,of open .space easements in gross. Rather, such interests were to be treated as gifts of *an undivided portion of the taxpayer’s entire interest in property” allowable under I.R.C. 1.7CI : (f3(3XBW). Section 2124(e) of the Tax Ref&m Act of 1976 autho rized a charitable contribution deduction for the gift .of a “lease on, option to purchase or easement with respect to

covenant against his land.. . The rights for-

commercial’ activities.. . The restriction of land use normally devalues the property. The restrictive covenant could therefore

right- had’been

..’

mechanism for the legal long term or permanent protection of... site.% A private

62): This- state of affairs. was ultimately entrenched. (with various modifications) in subsequent iegislation.28.This .long line

property

..-

by writing in.

vide or to .develop the property for any

Assuming,that, under I&al law, the rights transferred were a valuable ‘something’,

the IRS concluded

tax deductibility was unavoidable on legal principle. .’

C,B.

in ‘Revenue Ruling, 64-20.5 (1964-2

If the answer to all three questions ,was affirmative,

Since a restrictive

covenant

registered against land. is a right it would be considered a property. Consequently a donation of a restrictive covenant registered against the land to Her Majesty or to a registered charity could be considered a gift for purposes of section 1118.1 or 1 lb. 1 of the Income Tax ‘Act... 4 ,regis-tered charity may issue receipts respecting donated restrictive covenants providing the donation qualifies as a gift. For example, if the. donor were to receive services or any. valuable consideration in real property of not less than 3O‘pears’~duration granted to‘ ‘. an organization described in subsection’(b)(l)(A) exclusively for conservation.purposes.” The phrase conservation pufpose was defined to include “the preservation of historically important land areas or strnCtures.” _ Because of a drafting error, the 1976 conservation purpose easement authority contained a 1977 expiration date. In Section 309 of the Tax Reduction and Simplification Act of 1977 Congress repealed the authority to make tax deductible gifts of.‘easements of less than perpetual dura: tion and imposed a June 14, 1981 expiration date for .gIfts of easeinents for conservation purposes. Section.6 of the’ Tax Treatme& Extensibn Act of 1980 (P.&l 96541) revised, codified and made permanent author+ ty for Federal income, estate and gift fax charitable contri.bution deductions for gifts of preservation easements as “a Qualified Conservation Contribution” undei I.R.C. 170 (f)(3)(B)(M). Effective December 17, I984 only gifts that meet the requirements of Code 170 (D(3)(B)(iii) and (h) quali as charitable contributions. Regulations implementlng the legislation.were promulgated in 1986 at Treas. Reg. 1.17@$-14. 29. Brenneman and Bates (1984), p. 166.

‘.

exchange for the restrictive covenant there ‘would be no gift for purposes of the In&me would’.have

Tax Act. The individual a disposition equal to the

specifically contemplates this determina- ” tion. The section. states that, it must be ‘such portion,.. of the whole. property as . may reasonably be regarded as attribut-

value of the gift. The value must be deter-

-able] to that part’ -

mined by a person competent and quali- . fled to evaluate the restrictive covenant.”

much m.eaningful guidance. Further,.even Revenue Canada’s Interpretation-Rulletin

and does not offer . . .

on this subject (IT-264R) fails to provide any additional insight on this issue.“30 ‘.

Atlas (1989) goes on to conclude that

A final question.which has’ yet to be determined is the effect of “deemed capi-

“with the exception of relatively rare situations where there are specific cost. ele-

ta1 gains” when a-covenant or easement is

m&s

“donated”.

of, some form of arbitrary, but reasonable

Cap&l

G&w

and Coveniznts

If the tax, sygtem acknowl-

edges that a portion

of one’s property

rights has been disposed of (for receipt purposes), doesn’t it follow that capital gains could accrue on that ,portion? hi theory, the, granting of a covenant or easement would ‘give r&to

capital gain; with accompanying capital gains tax, The problem

a deemed deemed is in. the

,If a qualified

appraiser

delivered

professional opinion evaluating a conservati,on covenant/easement at a given value for receipt purposes and Revenue Canada accepted that figure, Revenue Canada would -also be. expected to take the same figure as the “proceeds of disposition”.

however, are not the deemed capital gain: the.deemed capital gain is the .pro ceeds of disposition minus whatever value would be.attached to that portion ‘.

proceeds.

When donating

of dispktiqn) = capitalgairf

a “partial interest

property” (e.g. an easement),‘the owner can calculate his deemed “proceeds of disposition” (i.e: the Fair Market Value of the easement, as attested in the receipt); but how does he or she produce a figure for the “cost”, so that one can deduce their “profit”? i The .Incqtie Tax Act insists that the taxpayer must declare a capital gain... but doesn’t say how. Michael -Atlas, in Canadian Taxation of Real Estate (Atlas J989), refers to the “granting of ease’ ments and other partial dispositions” as a ., “disposition of a part of a taxpayer’s interest in. a particular property (which) will require a determination of the... capital. . cost attributable to the part that was dis. posed of by the taxpayer... in order to determine the capital gain or loss arising from the, disposition. In this regard S.43 ;

30.

Atlas(19891, pp.5

‘:.

allocation will be necessary?’

mathematics: what ‘is the .profit margin on

minus (cost base)

‘..

to the part disposed’

a disposition of an easement? In theory, a capital gain is-calculated as follows: (deemed

attributable

The “proceeds

of disposition”,

of the “bundle of rights” originally, before the capital gain ,occurred. The practical problem is simple: it is impossible to define the profit .margin. on the “disposition” of a covenant/easement

because

there is no “cost of acquisition” for the-. easement .which the taxpayer can refer back. to in computing his ‘Tprofit”. Although it is feasible to’ appraise ‘the covenant/easement at the time of disposition, it is impossible to appraise what- it might have been worth at the time the pro.perty was originally acquired (i.e. before the “capital gain” accrued). However, that has not stopped Revenue Canada. “In the case of amounts received by taxpayers as consideration.. . .for. granting an easement, Revenue Canada has adopted an administrative policy aimed at avoiding the difficulty entailed in determining the, (original) cost” (Atlas 1989). The Department will

33.

.. . . :

: I .-

. .

usually accept .’ identi.cal.to’its

a “cost” of the easement “proceeds”. (i.e. that the

capital gain is zero, dollars], provided that:

able. So many Iegal fictions have been layered that the mathematical objectivity -. the,aiproach breaks down:

(a] .the.-area of the portion of the properthe

or right of way -was granted is not more than 20% of the area of the tota

were to accept this reports recommenda-

property; and

his or her property, but limit them to 20%

.. 2

of the&t-face in any single transaction. If the’,property-owner does so, he or. she benefits -from the Revenue Canada policy which is ‘to ignore tiy claim on deemed capital gain. on the easement/covenant. However, if the -easement/covenant coversmore than 20% of the surface of the property, ,then no such assurances exist. Under S.43 of the Act,. capital gains (and capital. gains tax). are supposed to apply; but there is almost no .physical, way of. computing them .accurately. That ,leaves open the theoretical

covenants,

possibility

of .donated

e-asements

if the Government

of Canada

‘.

‘.,’ y.. : t&n

u&iJe dis&gaPding the p&icy aspects of Revenue

tiovqaants, the mechatiics are unworkqbie. So r&&y

., ..-

: ‘tions on the subject of gifts generally (see RecommendatiotYNos. 1, 2.and 3). In short, the computation of’deemed capital gains for ,those easements would become moot.

fewer than ‘lo- are known), there is no.. reported instance of Revenue Canada

: the legal fiction of attaching deemed capital.gains to the transaction? It is submitted that such an exercise I . is more trouble than it should be worth

of:- (a) departmental largesse, (b) an unwillingness to tackle the mathematics, .’ (c) an.~un&llingness to adventure into: ’ uncharted areas, or (d) mere oversight: *. .’ _ ,

to the Treasu’ry. In most-cases, existing departmental policy would treat t’he deemed capital gain ‘at zero. already.. In. the remaining’ transaction, Revenue Canada already collects its- 7% .GST from the purchase, (as described later in this : report); is theieany ovetihelming policy necessity to collect more? Or wouldit not be simpler for’ Revenue Canada to, be satisfied with its 7% share, and disregard the balance ,of the claim (which may cost more .in accountancy fees anmay .than the claim is worth)? ’

Cinada (1984), paragraph

.’

.. .

2: :

: .’

2 :

That wouldstiil leave’ the -question of purchased easements and covenants. For

have been donated in Canada (currently

.3.‘. Reven;e

and covenants

protecting wetlands on the farm, should -Revenue ‘Canada go’ through the cumbersome exercise which is associated with

.’

restrictive covenant, i,e. pay a farmer in order to secure a registered agreement

deemed.cPpital gains ‘on .easements and covenants,. the mechanics are unwork-

”

objectivity of the agpr?ach breaki dqwn.”

invoking .a deemed capital -gain. -It is ‘.entirely:unclear whether this is a result

‘.

legal fictions ha;e been layered that the qzathem&iLal

example, if a nature trust .were to “buy” a

It is arguable that even while disregarding the policy aspects of Revenue Canada’s

Canada’s deemed capital-gains . on’ easements alid

of nasty

Opf~ons zinder Consideration

and.

.surprises. This possibility, however, is still theoretical,:. among the limited number of-’ covenant/easement agreements which :

case

.’

On one hand, the property-owner may decide to sign covenants/easements. on

The entire issue. would disappear, in

ty..; in respect of which an easement

(b> the (proceeds of the easement).@ not more than 20% of the- amount .of the . (cost) of the, total property.31 That leaves ‘a perplexing .situation. .

‘.

. .

‘_

/ :

.a ‘,‘.

It is submitted #

that any .Revenue

4: Charitable

donations of covenants or easements;

ta1 gains to purchased

for the protection of ecologicallysen-

‘easements

and

deemed capital gains. or’ a. 20% .income’ ‘limitation, any more than.

legal fiction is simply more than the fit:’ :tionisworth:-

donations of other interests logically sensitive lands..

Recommtkdation

iecommhdations. ._ :

protective

For the reasons outlined above, the fol-’ lowing recommendations

sitive. lands,: shodd not be subject to.’

covenants encounters the ‘law of, dimin-. ishing returns: the nuisance factor ‘of this

No. No.

Recommendation

Canada attempt to .attribute deemed capi-

are submitted:

No. i:

covenants

by environmental

in eco-

Purchases

and. easements

charities may con:

.tinue to be subject to GST but should ,not otherwise trigger tax ‘liabilities

. .

such as.on deemed capital gains.. ,.

:’

The Goods and Services Tax Other

taxes

such

individual sells la&that :

as the Goods

municipality or charity would be required to pay that GST; it would then be eligible. .for a Canada GST

they. spend ‘in pursuit-of their public : purposes. For example, let us suppose that a

if.the

50%’ Revenue rebate’for the

that

‘,

bier Fedet$il and.Provincial Taxes

it ‘had paid.

Non-prpfit corporations which are not. registered. ‘charities. may .also be for the 50% .,. eligible Revenue, Canada rebate;

municipality or charity ‘undertook to pur, chase forested land., The transaction ,would be ‘GST-exempt

was used in the

vendor’s .business, or sold in the course of a business, tax will appl~.“~’ The

and.

Services Tax (GSIJ have an indirect effect upon various philanthropic activities. For example, there are rebates available to municipalities, charities and certain nonprofit corporations for the GST which

in the event that 40% of their funding ..

land was

comes from. government sources. .“personal-use land”. ‘In. the publication, A Conservation authorities” (e.g. those ” ” Guide to tbk Goods and Services Tax, under the. .Coizservatiori Authorities Act this is ‘described as. “real property .in Ontario) .are in a different position. In (owned) by -individuals or trusts (all of order for -them’ to avail themselves of the beneficiaries of,which are individumunicipal-type GST rebates, -they must als), other than capital property which obtain’ a federal certification. that “they was used ‘by the vendor primarily in the . perform a .municipal service, operate in. course of a taxable commercial activity, are’funded in part or real property which: is sold in the -. ‘the public,interest, .from government grants ,or’taxes;are retcourse of a business..“32 This exemption

Guide to to .the’Goods .tk’Goods 32. A Guide and Sert+s Act, by Dancey Resendes, Kesler and. Puthon. CCH. Canadian Ltd., Don Mills, (1991), p. 45. 33. Finan& Canada (1989), p. 112.

‘elected representatives

or government-

‘appointed officers.“34 Provincial governments ,are constitutionally exempt from the GST; they do not need to pay GST’ on’ purehases’of such lands. : 33. Deloitkand 33.

Touch& (1990). p. I06

.. .’

‘.

ognized by the provincial government as the local -authority, and are governed by

extends to’ “country properties, noncommercial hobby farms and other non-businessland”.. ‘, .Other purchases, such as from.a professional speculator or a .iumber company, would be subject to. GST. “mere an .:

.’

conceivable

Provincial Taxes Other. Than on Property

that this treatment

can be

property:tax. The legislation. in almost every provime and territory provides cer-

extended &those involved with the property management of ecologically -sensitive lands: However, the monetary value .of such incentives, .for the purposes of

tain favourable

the latter group,. wouldlbe small.

Provinces

taxes

have tax systems other than

treatment

paid b.y farmers

to gasoline

or loggers. : .-

.. . _

‘.

It is ,:

Furthermore,

IGeneral The system of property tax.ation in Canadais pivoted on two basic steps: ”

(1) an assessmen.t’of the real estate ‘belqnging‘to a property-owner; and _. (2)‘ the levy of a tax based upon a specific

percentage

22-

ment legislation could: .

the property

taxes

altogether:

’

first assessed, then the mill rate is levied, producing a given amount which may or. may not be adequate .for the current bud-

getary requirements of the municipality and/or school board. In other provinces, ; the same system operates in reverse: a

Property TaxTreatment.

exempt charitable orgadzations from property

(“the mill rate”) of

that property. In’some provinces,

the system of “inarket

value assessment’* also witnessed .various statutory exemptions. Provincial assess-

exempt

‘farm lands or substantially

reduce their level of assessment; or exempt

“woodlots”

or substantially

Insome tion would for owners after having

.”

cases, the provinces’ legislainclude a penalty provision &ho converted their land enjoyed a preferential tax’

treatment,for several years. In other words, if an owner was. paying less-than-

calculated. to produce precisely the required (budgeted) income. In virtually every jurisdictiqn,’ the basic princip1.e has been to develop assessments which would’correspond as closely as possible to market value (or a fixed percentage of market value).

normal property taxes because his or her land had a special use, and he/she then discontinue,d that use, the property taxes would then return to. normal levels. -retroactively. This is sometimes called a “clawba~kci<“.~In Ontario, for example, golf courses could have their assessment

However, that approach tias difficult to apply verb.atim to ecologically sensitive lands. .Most notably, “wastelands” have traditionally received very loti assessments: these lands included wetlands. However, those values could fluctuate if .‘appraisers treated the lands’ as

frozen for years; even decades - but if there was a change of:use,, then up to a decade’s-Worth of back taxes might immediately become payable. In addition, there are standard formu.‘las applicable to covenants and easemerits. Each ofthese.will be described in

”

reduce their level of assessment..

given budget is agreed upon, then the municipality sets a mill -rate which (when . applied .against the assessed property) is

“recreational”.

turn. A profile of property tax systems for each Canadian. jurisdiction .is presented in Table 2. . .. :

. L

New Brunswick: Provincial. Mu,nicipal ‘~,

lc, 2, 3a, 7b lc, . . .’

5 -

3a, .,7a

la, 2

NBwfoundiand

3a,

Northwest Territories

_’

-’

Yukon

Nova’&otia Prince Edward Island

Ic,7b -

.’

3a.

7a yy-

.3c

.. ..

]. ].

‘-

3d* 3Cf*

;

‘. ..

..-

* St; John’s

... : 3c

Table 2: Prpfile ofProp&rty

.-.

Tax Systeriis in Canada

Legend

: 1. Exceptionai Appraisal Methodology a. Appraisal based on soil productivity b. Appraisal based on farm/woodlot income-generating capacity c. Appraisal base’d on likely sale price. to other farmers : 2. Differential Assessment. (i.e. mill rate computed,on a lower p,ercentage of assessed vaiue) 3. Exemption ,:. a: Outright (i.e. absolute statutory exemption) . b. Outright, but for some charities only .

c. All charities eligible, but at .option of municipal council d. Some charities eligible if approved by mu&pal council, 4. Assessment Freeze 5. ‘Taxation on Other than Appraised Value (e.g: flat rate) 6. Rebates and the like 7. Clawback on Conversion. .a. Fixed penalty amoum b. Taxes paid retroactively

‘.

:. . :

/ ‘. .

‘. AsSessments.

In some other provinces,

modifkd Cl&c

th,e sale-price.

comparable sales, but. exCludes tho,se associated with conversions. This again constitutes a preference; and- is some-

definition of Fair

Market Value; .for assessment purposes, is the price which would be paid on

times applied .to farmland: assessed value

the open market between a willing-seller and a willing. buyer. It is. against ‘that stan‘. dard that all subsequent corn&red.

approach: the legislation takes account -of

Priniriples of A&ess.m&t

The generally :accepted

.version

there is .a

is calculated with reference to sales from : one. farmer to another, but not between

devices can be

.’

farmers and developers.

In daily.practice,

the projected

mar-

ket value which the’ fypic; al appraiser will attribute to a property &i 11 usually be an amalgam of three

Prefqential

the &-ocess

‘the

.erty ‘had been done,

LLc~l,-knrir~

theA yn. (how much operties selling for?);

most of Canada a practice heveloped whereby Certain classes of properties.’ .were assessed. at a different percentage .of value than other classes of property: the -. mill rate. might, for.1example, be comput-

... the “income theory” (what is the cati-. italized figure- for its revenue-generat-

ed on a different percentage when deal- ’ : mg with residential ,property as ,opposed to commercial property, with farm property as opposed to non-farm. property, etc. .This’svstem of. Inreferenbes has some,

ing capacity?). 6ales-nrict-

snnroach

includes

comparison with other turpavers of propin a7tlirl-l then=. . . AAL

..111L1&

CIIGIC

24.’

----

“Ri?cre&onal”

:. .. Canada’s

Preferent$al&fetho&;logies

Because normal appraisal practices incori porate ah three approaches, it is a deljarture from .the norm for prope’rty. to be assessed exclusively on the basis of a single one, ,such ‘as the ,inoome approach. ; Some assessment-statutes -have. done so for decades, as a self-conscious preference which is @ovidedto,,a given kind of prop- ’ &ty that may have high sale value.but low :. income (e.g.-farmlaridin

some l&ovinces)..

35. In some markets, a fouth Set of figures is-&znerated on the basis of the tenant’s ability to pay (e.g. certain shopping inaIls etc.). This apprgach, however, is hot necessarily welladapted to many Canadian situations,. particularly in relation to ecological lands.

I .I

Assessments

property

“recreational

r--r-‘

for Assessment

1 .’

times been called “differential .assessment”.

figure used for e,valuation of wilderness areas. By. cornpal risen, figures generated *. i _.. ny wnat me property. may have cost; or .: . . . .. .. * \ * ,~3.. ~anernativeiy~ oy capiraiizmp me nronerty’s net.income, tend.to be very modest _ ‘_ tor such properties. ,. ‘---D

the mill rate was

computed on a certain percentage of that assessed figure. However,’ throughout

the “cost theory” (what was the -property’s cost, noti adjusted for -inflation and. depreciation?); and

The

.Traditionally, once the appraisal of prop-.

appraising ieal estate”36 are called: .-

Tax Payable

~~figures.35 These

“three’ annroac hes,to

Cakuhtions

‘.

tax ‘treatment

lands” has .been uneven. In

-some cases, overt preferences .have ,been allowed for assessments or exemptions. ‘. from pro$-ty taxes. For example, PNew Brunswick, Quebec, Ontario and British Columbia. have singled out golf courses. ‘13’.Furthermore, “land held in a ‘municipality for public recreational purposes .by associations. . . may- receive spe.cial tax concessions at Council’s option, in .. Nova Scotia, Ontario, Alberta, and, British Columbia”’ (Finnis- .19i!9). ‘On Ithe other hand, there are ‘many government ‘.‘. appraisers tiho assume that.when land is used for. “re<reational” purposes it merits . a higher assessment, than, say; a woodlot used for firewood. Ionson (1988) .report-

‘.

36. Hoagland (1955), p. 245. 37. Finnis (1979), p. 1Cj

.’

ed numerous example, 64th

instances

in Ontario,

for

Assessment

where ‘such land was equated

“residential”

under &sement/Covenant

‘lands, with a dorre-

reduce :

Agricultural

suant

A$sessments

Every province

in Canada provides spe-

been diverse, :and are outlined

.tion:

later in

The Outcome:

Prince

Certain JYefbrential

Edward Island, New Br&&ick, Ontario and ‘British Columbia require’ farmland to be assessed at its value. as a farm pr0vide.d

Tkeatment

The. foregoing profile approaches demon‘strates that in‘ ever,y ju.risdictionin Canada, there. are certain properties which enjoy .most-favoured ,status from a. property tax standpoint. .. : ._ ._ .

the owners can meet certain criteria to show they ,are dona fide farmers:Compliance means that in assessing the farmland no consideration will be given

andcovenants.

.., ’

summa,rized the situa-

“Four of the provinces,

the assessed value of land pur-’ to easements

. Ontario’s .AsseSsmetit.kct, for example, has separate provisions addressing the reduction in value pursuant to’both’ easements and covenants.

cial treatment to its agricultural-lands. The approaches and mechanisms have this,report: Finnis (1979)

Assessment legislation will usually issue absolute directions. for appraisers to

spondirig increase in assessed values.

of Lands

; .‘,

to the val&of other land in the area that .. The Concern for Municipal ,. may be increasing in -value- because.of Treasuries ’ other development.....” Preferential approaches have sometimes Nova Scotia delivers to property ownbeen considered for application, to eco-: ‘ers the same practical effect’as an exemplogically.sensitive lands,:including wettion on farmland: the province pays the ‘lands and. other ‘wilderness.. The

_’

municipal taxes in his stead. The provinces have, not used a standard approach: instead, there is substantial variety in -the techniques which have .

been used to provide preferential-treatment to agricultural lands.

Woodlhs

and I;bkests*

Like agricultural

lands

enjoy specific .preferential treatment in most assessment. statutes. That treatment is sometimes assimilated, to agricultural land; and in other cases is. distinct. Some provinces will distinguish between several categories of wooded lands. Qne category may include farm woodlots <up to a certain size);, there’ may be a second category for managed forests, and a third category for.open timberland. For example, “managed an@ bona fide forest land ‘is exempt in Prince Edward Island and Nova Scotia while. all .forest land in the prairie

..‘.

provinces is exempt from property ,taxation’ (F&is 1979). . .. .

however,

cerned that this could lead to a reduction in currently-assumed assessment levels, and,. hence,, to confrontations with.

r : ’ :

conservation.” . :.

sector organizations for losses in their tax base resulting from revisions in assessment:procehures related to wetland

: ..

‘.

provinces and municipalities should review and, where. necessary, revise.Iand assessment and taxati,on systems to ensure that they ho not discourage ‘&et-. i land conservation. For example, tax .assessments should be based on -existing .rather than potential -uses.” The Forum continurd: “Municipalities should be compensated .by the province or private

,’

have been con-

: .’ municipal treasurers. For example, that is what led the Sustaining Wetlands .Forum . . (1990) to recommend as follows: “The

.,,.

lands, wooded

proponents,

‘.

Specific Favourable

Measures

Distinct Evaltiation Procedures

Some governments

have distinct Iegisla-.

tion which dictates how property is to be appraised.

A summary

of. the basis for

assessment. in each Canadian jurisdiction

is presented in Table 3. For example, property may ‘be- appraised at ‘lower than

Fair Market Value, for property tax purposes, if the legislation specifies: (a) that ,it must be appraised type. or. productivity;

according

to soil

u8 2 b ;

(b) that it must. be

appraised according to income; or (c)that it must be appraised according to comparable sales between farmers.

The Hebitat Retention Program is an example oflandowner stewtirdsbip in Alberta.

.‘.:

* Saskatchewan Manitoba.

Income

Ontario

”

New Brunswick :

‘.

Prince Edward island ‘.

_-Soil Productivity

”

Exempt ..’

Soil Productivity

Exempt

Yukon

: .’

Two-tier tax-. :

-.’

-’

Special.Formula 1

Table 3: Basis of Assessment.

-I.-

.’

‘L.-

Flat rate

: -

Separate (nominal).

Exempt

Northwest Territories .‘_ i

Tax 80 cents/ha.

.Newfoundland

20 acres exempt

Provincial tax deferred’ Municipal tax on value to other farmers

Nova Scotia.

’

Value to farmers, soil

Quebec :

-26

Soil Productivity

-’

..-

example.

1Exemptions

Over the years various provinces ..

granted exemptions &y-owners,

in the categories. of agriculture presented -in.Table jurisdiction.

exemptions;

to- a variety of prop’ and tim-

ber. A summary of such exemptions

and-miss. ’ Assessqent

were

I ‘British Columbia

‘but the legislation

In Ontario,

the

tected open space.

a typical

Outside municipalities

Inside municipalities: parks, recreation sites, at option of municipal council

,’ I

At option of municipal council

Saskatchewan

At option of municipal council

for example,

Act referred to Boy Scout and

Alberta

Manitoba

was hit-

Girl Guide Camps but not to other pro-

4 for each Canadian

Churches

other kinds of

charities were included for property tax

have

aside fr.om- those described

In due course,

., -

,- I

YMCA, etc. noi environmental charities.

.. No

YMCA,‘Scouts, etc:

Ontario.

not environmental charities’

Not automatic

Non-profit organitations approved by Quebec Municipal Commission . Works for protection-of wildlife orforests i Non-profit organizations which have an-agency agreement with the Crown

New Brunswick :-

Sliding scale to down value assessment

Nova Scotia P

.’

At option of municipal council

Q,uebec.

‘.

Prince Edward Island ‘.

,Nonhwest Territories

At option of municipal council

Newfoundland.’

Yukon

j,,;.

Societies

Act groups, at option of.council.

Religious use only

No Table 4: Property

deligious/educational; but not environmental charities

.Tax Exemptions

’

. ./ .

Distinct Rates

‘-

A,s mentioned earlier, some provinces di& tate that: certain classes of .property will ‘. .be .t&ed on a fig&& whi;h percentage

is .a different

of Fair &Ia;kef Value than

other classes of .prqperty. The patt&% of “differential assessment” for farn&nd and .timberland for Path Qnadiari -jurisdiction ‘. is presented b.T&le 5. ‘. ,” :

‘.

.‘-

’ .

British Columbia _:

Lower percentage than non-farm

‘.

Alberta.

Lower than open timberland.

‘Lower percentage than non-farm

).‘.

.Different rate.

.’ ..

,’ Saskatchev&n

Lower than residential, commercial, etc:-

‘..-

.. Manitoba

Lower ttian residential/commercial I

.Ontario

‘. duebec

‘.

New .Bruriswick

Lower than ,. “busin&s’~

Fiat rate

Flat rate

.. :

Nova Scotia

Prince Edward Island

.::

Nil (exempt)

Depends on size ‘.

Lower than commerc/al, commercial, property

Lower than commercial.

Depends on’size Lower than commercial

I -

other timberland I I

I ..

Yukon

. .

‘.

-. -.

Tabl@ 5: Lh~er&ntial Azkessnien f &?s ,. ,: ,. :

....

: ..

‘.

._ : , ‘.

: :

: -.

. .,

O$$.fs&ti&RebateF and Grants

heritage

’

In some provinces,. the mechanism

which pro-Porest. Tax

which addresses

the province’s

natural

British Columbia

I :.

that

“legislation should specifically. provide that municipalities .may offer ‘rebates on .property taxes to owners of designated i.e. property which has been prqeq”,38 designated ofnatural, architectural or historic significance to Ontario under. the new proposed Ontario Heritage Act: A summary of ‘property tax rebat.e mecha-

Rebate’Program which.does.likewise, and the Conservation Land Tax Reduction Program. For- example; the Government of Ontario’s Herittige .Legislative Project,

as well as its cuRural, heritage,

includes among its recommendatioils

used-

to .provide ,a preference is a rebate of ‘. taxes to the property-owner. This is a’ favourite technique in Ontario. There is a Farm Tax,Rebate Program .vides rebates, a Managed

...-

nisms for each Canadian jurisdiction is ‘presented inTable 6.’ ,. ..

‘. Alberta &askatchewati

‘:

.- Manitoba.

..:,

;

Ontario _‘.

Quebec

70%

850/k**

New Brunsw/&

” ‘.Deferral

Nova Scotia ;

loo.%**:

!Wt-& Edtiard ls.lgd Newfoundltind’

.. :Yukon

Table 6: Property *.

‘_

.lj

-’

.’

”

Tax Rebate Mechanisms

I:..’

work done on.forest management.

*** Strictly speaking, &is,is not a “rebate” but a provincial.payment ._.’

38.. Ontaiio’Ministry

..L

Proposed

** Rebate is only tri&eredby

(1990); Recommendatioh

‘Northwest Territories:

of Culture 21.2.

of the. taxes in lieu of thqproperty

‘owner. .,

Comn$ications -,

29’

Freezes

Penalties

on Chzversions

Some provinces will .offer a tax or assess-

Several j&dictions

ment freeze:

visions &hen a preferred use (e.g. agricul-

property ” important

during times of escalating

values, this can constitute

asset for the property-owner.

impose penaity pro-

ture, golf courses, etc.) are eiiminated and replace-d with’ more intensive uses

Columbia while in

such as commercial development. For example, taxes ‘may be charged retroac-

..Newfoundland freezes on golf courses are negotiable.

tively. Tab!e i provides a summary of tax penalties on land use conversions for

Ontario, Quebec and British . do so with golf cour.ses,

each Canadian jurisdiction.

I British Columbia’ Alberta: ,. Saskatchewan

-..

.,-

‘.

‘.. ‘. I

.:I

Clawback .’

7. -

Clawback

r Quebec

New Brunswick

Claweack

Nova Scotia

20% Tax

: Prince Edward Island

Clawback

‘. ’

Clawback

,.‘I’,Clawback 20% Tax

Newfoundland .Northwest Territories

Table 7: Tax Penalties

on. Land Use Conversions

I :I

., ..-_ -’ -

. .

&udties

on Vackt

Provincial and Territorial Profiles

L&d

..6or many years, the “development ethic”

‘Britjssh Columbie

was so strong that governments imposed tax penalties on the retention of wilder-

The basic legislation

Act, the .Munz’cipal Act,

into mere surtaxes on vacant urban l@d

(R&a1

speculative.

which would be-considered

purposes, less .harmful

..a tax rate which is a fixed rate per acre, rather than one based on assess.” ment. That tax rate tends to be lower than on commercial lands, but higher .. than on timberlands..

boundaries the Taxation Act provides an absolute exemption on taxation of charitable non-profit.

...

organizations. .

farmland .

lands used for jam&g:

is assessed on the basis of “,prescribed tables of values ,per acre based ‘on the capability of the land to grow field crops” (Greenwood and

is usually reserved for serviced land. Nova Scotia: .“recreational” ,lands of environmental charities are-subject to

c’ouncil’.s option,

used principally as a public park or for public reereation, or other property of .non-profit .and charitable organizations. Outside municipal

Government of Ontario to wetlands drainage under the Tile Drainage Act’ or

‘,

parks and

hznd& held by char&s:

well as any property of an association

provided for the destruction of wilderness such as the financial aid given by the,

vacant land, which is not used for farm or woodlot .purnoses,.may be hit with a surtax at the municipal council’s discretion.. In practice, this

and the School Act.

Area)-Act,

at a municipal

’ included surtaxes on %acant land”; alternatively, there were. monetary incentives

Quebec:

.’

the .Tax+tion

recreational facilities may :be exempt: ed’ from taxation &thin municipal boundaries under the Mtinicipal Act

would be considered consummately counterproductive today, at least by the environmental community. Such taxes

tive provisions in the tax sphere can be ‘., summarized as follows

.’ Legislation includes the’following specific l&ovisions: :

by .the environmental community; but if applied to true wilderness, such penalties,

the Drainage Act. Today, the remaining counterproduc-

is the Assessment

ness: These penalties sometimes evolved held for purely

Whybrow. 1991). There is also a sys tern ,of differential assessment.39 i

woodlo,ts:

Columbia

lumber areas in. British are, classified as Unman-

aged Forest Lands or Managed Forest, with a system of differential assessment. Neither category applies, however, if the “mghest,and best .use” of .. the land is other than the f‘grotiing

.3I

and harvesting of trees”. The assessments themselves are based on ” _

-forestry use.. * covenants/easements.assessed ‘impact.

. :

Golf courses

to actual.

can have their assess-

ments frozen;.There

reduction in

value, according

is a penalty clause

for course owners who sell during the Iife ‘of the freezing agreement..

_’ 39. “Aiproperty is currentfy classified into nine classes, based on type or us?; on each‘class, municipalities and (in .rural areas) the province may levy different tax rates.” Greenwoad and Whybrow (1991), p. 15. ‘. ..

,‘i

.-. ..

‘.

Alberta

The

Saikatchewan

‘.

basic

statute

M6ni&paE

in’ Alberta

Taxation.

other .provisions the Municipalities Prouincihl

Propetiies

Municipal

T&C Exemption

Alberta

Pr’ojievty

are

in the .SchooZ Act, Assessment and

Act, the Mtinicipa[

Equalization

The legislation in Saskatchewan

is the

There

Act.

Valuatton

and

Rural

Act, the

,. _.

‘.

I,-,=

IE-CPEEPTI.

.th,=re

ir‘ -x t-i-

YMCA and YWCA properties,

rele&nt

charitres

environmental

but

(including.

exempt (annually) any descrip‘tion.40 ,.

pro.

assessment.

is 65% of

does not ‘address this issue, except

value, according

the

Rural

Municipdity

s. 331(s):

I .

lsemenzss: .reauction

cov&&ts/ea

-^^-^^-

according

‘_

to actua-I i

are exempt

from

certain taxes,~but’e.nvironmental. charities do not,appear among-them: .

lundi held by.c.bai-ities: some char-

itable institutions

Alberta had

Act,

~ccimil~t-

Municipal Assessment Act. There are also ‘relevant provisions in the Public Schoqls Act. Legislation includes the following specific provisions: .. ,.

been tending towards appraisals of can: .’ servation la’nds which focused on

For example,

_ The basic legislation in Manitoba is in the. 1

.to actual

income-genemtmg capacity, as in the case of l&n Land Rates.. Since the’income was almost nil, the ‘assessment was therefore

“? . .

‘Manitoba

;

As a- matter of practice;

t~nrl

impact.

for lands.held under a forest managem.ent agreement’or lease, which are :. ..tax-exempt: assessed .impact.

thece

asscssc.u A ---‘--e, va1u

woodjots:

‘,. -cotie~nts/easements:~.r~ductioh

farm&: land is . . .._o- ____^ - ^-

ed to_. farms...N~ I tally on point.

The

there are so few privatelyheld forests in Alberta (as opposed to ‘forests in Crown) that the legislation

used jbr

w&&l&s:

the assessor must assess at “Value” (i.e. market

lands used for farming: vah+\

hilt if cafarmer

‘,

annlie<

.. .

iands of ‘almost

sufiposed to be-assesse’ d according to “$-esent use” ‘which, in terms of ‘current procedures: is related to productivity’(adjustkd for production’and .i similar farm land values).

there is a complex grading system for land productivity which is the basis of the

lands used for farming:

That calculation

la$ds

ones) are .not specifi-

tion specifies that municipalities may, .. at, their discretion, waive taxation on Crown lands occupied .by Ducks , \ ~ Unlimited Canada. .,

deregulated percentage, “fair actual’ value”.

40:

all .proper-

lands .beld by charities:

tally referred to. However, municipal councils have a general power to

tem of differential

l.32

the

taxes, A refusal can be appealed .to a Local Authorities Board. The’ legisla-

assessment.

. .

Act: Legislation includes, the fol-

other

duces the “fair actual value of the agriculture land”. There ‘is also a sys

‘A,&, and

tiuniciphlity

tip.=

is found

ksses’smen

Lowing specific provisions:

A@.

municipal council for waiver of their

Saskatclkwan.

Northern

_.Legislation includes the following specific provisions: : ., lands held by charities: non-profit organizations generally can apply to a

‘.

the

T Management Agency Act, the Education’. Act, the Urbanl,Municip&ty Act, the

Act, and the

T&x R.eduction

tn hrino

.’

”

, :

. .

‘.

:. :

assessment Assessed

called

assessed

“Farm Property

Value,.” this property

based on use ‘for farming

rebate

i.e: sale Ivalue ,to other

taxes.

purposes,-

farmers .and productive

capacity

the. soil. Furthermore,. there is, a system of differential assessment (called “Portioned Assessment”) which.com:’

put& ta$ on a lower .percentage

fig-

ure for -farms than residential . commercial properties.

.or

farining:

on municipal

woo$&~

exclu.

ciated with a farm. The exemption

limited to “one acre used, for forestry purpose

for .every. .ten

acres

to 50% bn municipal taxes. There are

are speciBcall;l on point.

elaborate definitiohs of the criteria required for such “managed forests”.

reduction in .to act,ual

impact. In the case .of farm lands; ecologically sensitive ,portions may be labelled ‘“conservation lands” and assessed at very low values. A conversion of the farmland can .. lead. to a clawback of .taxes covering a’ five-year’ period. Golf courses have the lowest rate of taxation of all categories.of . land under the “Portioned .Assessment” system.

purposes. Battle sites also appear to be inc1ude.d. Properties held by land., trusts for ecological purposes are. not immediately included .in t&t .exemption.

covenants/eaiem&ts:

: assessed ‘. impact.

reduction in

value, according

to actual

Pursuant to the “untaxing nature’ ini-

Assemm?ntAct, An

Land. 43.

Act

to hmote

1988,

F@eraiion

”

tiative”, Ontario passed the Conservation .Land Act.42 The Act specifi,es a variety of ecologically sensitive lands’ incl-uding wetlands, and othe,r properties; in . addition,, an .Order-in-Council has specified the .classes of property which ca,n

.*’

be considered “conservation lands”. “Approximately 372 000 hectares, mostly :

$0.

the

Conservation

’ ‘, ‘33

’ Assessment freezes are confined to galf courses,’ subject- to a ciawback. Clawbacks. also apply on conversion of. ‘farmland, conversion of woodlots, and conservation lands. ..-

19(3).

~41. of Ontario Nat&dists

ment contribute to provincial conservation and natural heritage objectives.“*3

. 42.

‘.

‘,

taxation under the Assessment Act, : but this exemption’appears to extend only to properties used. for religious,. .hospital, university and other related

‘41.

_’

. .

., in southern’Ontario, have been identified ’ -. as conservation iand eligible’ for the tax .. The basic legislation is found in .the rebate. Eligible land includes: Provincially Assessment Act; the Provincial Land .Significant (Class 1.; 2 and .3) Wetlands; : T&x .Act, the -Fores&i Act and the Areas of Natural and Scientific. Interest ,~otisewation Land Act. Ontario’s legisla*. ‘. (ANSIs); natural areas within the Niagara tion .includes the following specific .-’ Escarpment .Planning: Area; non-revenue provisions: Conservation Authority Lands; and other conservation lands owned by. non-profit ‘. :, Z&ds held by c;barities:. lands held organizations that through their manage- ‘.. by certain charities are exempt from ..

.’

farm~“41Managed forests are’currently under consideration for a-rebate of up

Ontario

woodlots of up to eight ha

on quality of soil and the value of

value, according

._ .:

of Certain

(20 acres) are tax exempt when asso-

Act appraisals are based

&ouenants/ease?mmts:

,’ ‘.

.an’d school

Farmland is appraised

(the appraisal ignores market values associated with alternative uses). -’ .

ihe

offers a 75%

standing timber. No other. incentives

assessed

‘.

for

government

sively in terms of its farf&ig~potential

under’ the. Municipal.

woodlots;

&essmekt

l&ads .&ed

provincial

”

‘.

(1988), p. 10. .

.- Y.@ieb&c

The basic legislation is-m the &eaE Estate Assessmerit Act, the Educ&ion Act, the Forest. Act ^and.the Municipal Taxation pet. The Munkipal Commission Act, the Schools Act, the Ag+cultur& L&ads Protection, Act and tile Department of Act also have a role to play,

Agriculture Quebec’s

legislation .includes the follow-

.. ing specifc .

provisions:-

lands held b> charities:

non-profit

establishments can be exempted from property tax by the municipal commission. Nonetheless,

municipalities

may charge for services actually received (e.g. utilities), subject to a I ceiling. .

lands. used for farmin&

bursement on both municipal and , school- taxes. There is a sliding scale for re:bates depending on whether the land is within an- agricultural zone. Farms .and .wo.odlots are exempt from .the surtaxes, under the Cities-and Towns Act, on “serviced .vacant land”. Farms and woadlots are . .

concerning

golf

courses: their value (above’ a certain low .fixed amount) istax-exempt; but, as in the, case of Ontario, the incrementaltaxes are applied retroa .cttvely . . m . the . case ,orr conversion. of the :property. There’ is also a clawback provis ;ion on the rebate for forest land at convt zrsion. Major revision ;,are expected to result from a current the.direction Thir

re view underway. under

of thez Minister of Municipal +-PTA

Commission, is expected ,aun&n of 1993.

to report in the

New Brunswick

The basic legislation in New &nswick

.in the Ass&smea.tAct, the Reaf Property Tax Act and the Residentia f Property Tti Relief Act. One of the effects of the corn-. bination of these statutes is “almost to

farmers who harvest trees are eligible for the same incentives as

Brunswick, there ar.e two kinds of entries: the province applies .its tax rate, and (in

exempted:

several municipalities) a municipality ._ applies its own. Al-11ot- the _ provincial rate .is then rebated; ir1 the case of prin-cipal residence, to own :rs who live in munici- .pahties. Outside municipal boundaries

. ..

(the Civil .Law counter-’ part to covenants/easements): reduc- ..

servitudes:

actual impact. Works for the. protection

of wildlife

or forests owned or operated by a public agency are exempt. An .exception can ‘. extend to a non-profit organization which has signed an agency agreement with the Crown, e.g. La Fondation de la faune du

(i.e. in Local Sen rice Districts), part of .the provincial pr opertp tax is rebated to owners of principal residences. Legislation includes the following specific provisions: . lands held by char-it&%: on applica.. tion’to the Provincial government, the propertv

44, Fintiis619791, p. 57.

.’

determine whethe r a given property has been assimilated to the “business” caaegory or .the “residen tial” category. In New

forestry management. Public forests and experimental forests can be

tion in. assessed value, according .

provisions

double ,the tax rate on business proper-

. other farmers. The Forest. Act allows

‘, .8

are special

ties in comparison with residential.“** It is, therefore’, very important

a rebate’ of, gS,% of. municipal and school taxes; when work is ‘done on

‘.34

woodlots. .Farms and woodlots .are also exemp.t from land transfer tax.. There

exempt from land transfer taxes. wqodlots:

”

apply (at their discretion) to vacant land; . ‘but this ‘surtax does not apply to farms’or

Bffa:;~

farmers

are eligible for a 70% or greater reim..

There is a surtax on vacant,land which municipalities are authorized to

of charitable

organiza-

.. :

‘.

tions .is‘eligible for a reduction of valuation : .

of 16% to 75% through

I) lands

the

province

Zands use4 for farming:

the Stan-

real property

other uses triggers a retroactive which would otherwise

land is“located.

can trigger a tax equal to 20% of the : value of the property. ., . woodlots: timberlands

(FLIP) allows 100% of the provincial Conversion

agricultural.

’ The’ landowner is exempt from paying tax on farmland. A change in use

tax. is

to, tax

Assessment

Act, s. 47. Instead,

owner

assessed ‘according% to its value to other farmers, not its market value to

.acre for “resource

properties”

where ,the owner

owns

non-farm buyers.

2’0 235’ha higherrate

woodlots:,

~ ‘. _

property”, these .woodlots are taxed at a lower rate than other non-residential property. ‘reduction in value, according to actual

covenants/easements:

’

assessed . impact, if any.

Golf courses are treated in an analo- .., gous way to farms: they are assessed in terms of.their value to other golf clubs, as opposed to their market value-on conversion. There is.a clawback of taxes on conversion of farmland.

The basic legislation is the Assessment ‘Act. ‘Nova Scotia’s legislation includes the ‘following specific provisions: charities; charitable organizations and institutions are- taxexempt from business occupancy. taxes, but not normal property taxes..

lands held.@

The.property of the’Boy Scouts or Girl Guides-is automatically exempted from property taxes, but other charities are exempted only upon androval of the m&cinaI.council. *-

‘.

are’ totally

.paid over the last decade. Farmland is

Nova Scotiiz

exempt from property tax under the

have been.

freehold timberland is assessed at $SO/ha. Farm woodlots can be assessed at a value that will -realize a. total tax of eighty cents per hectare per year. Like “residential.

:”

pays a certain amount per

acre per year to the municipality

taxes to be deferred.

the

where

$1:50 per $100 assessment, but the ” F.arm Land Identification Program

farming:

Value In Use Program. dard provincial

for

used

pays z+certain

amount

the. per .

(i.e.

less than

- 50 000 acres) and a per acre for “commercial

property”‘(over this limit). There may be an additional charge of up to one cent. per acre where a fire protection rate is levied. A change in use can again trigger a tax.of 20% of the property value (except where the change is to agricultural use). reduction in assessed value,. according to actual

covenants/easements:

impact. .

property: “land in excess of three acres belonging to any non-profit .charitable... organizations, excluding any structures, that is used solely for the .non-profit purposes of the organization is liable to a ’ recreational

recreational . acre’.(Finnis

property tax of $.5 per ‘1979). This figure was

subsequently adjusted, but remains twemy times the tax rate of lumber “resource” -property <i.e. for- timberland where the ownership isless ‘than 20 235 ha - 50 000 acres).

.+hzce

Edward

Island

drlrxi~rrl The basic legislatic n in PrinrP Island is TV- .n-lr 1 K ~CUC Property Assessment

Act and, tl 1.e Rea.1 Property Tax Act. Prince Eda ri*A al u T-1and lJlal provides an.initial and funda,--mental -..---* distinction _ between commercial and.non-commercial property: commercial property is taxed at twice

.: -’

.’

: .. . ‘.’ ‘,

the rate of non-commercial

property.

: other municipalities can exempt’other property. $Ietifoundla.nd’s legislation

.Legislation includes the following specific .provisions: .. lc~n$s held by cbari(ies:

charities

which

includes” provisions:

the only

are listed as being

tutions. A land trust, for example,

nizations which are regisrered under

lands us&

the Income

for fcir&iti&

farmland

‘.

that of “commercial realty”. However,, since farmland is: defined as

~ I ..

for

these

farming:

under the Forest. Land’

woodlots:

aqd‘Taxat&)

&t,’

multiplied .bg the stumpage rate. There is a significant reduction for

reduction in

value, according

to .actual

.’ Northwest

Territories

: ., In ‘Newfoundland, there is no ‘assessment (and hence no property tax), outside municipal, boundaries. Even within

,Territories,

the’basi’c

statute is the Property AsseSsmend Twat(on Act. Legislation includes the following,provisions:

.’

. .laid$ held by charitieq:

: :

: .-

the. couni

,. :

...

cil may, at its option, exempt lands of :a society under the Societies Act from taxation .

municipal boundaries, some 25% of Newf&mdland’s communities have no ..

.The principal legislation in Newfoundland is found in the Assessment dct, the Municipality,Ak, and the St:~ohn’s Assessment Act. Councils of .

no provion point.

; ..lands used for farming:

Sons are specfically .’

.’

no provisions, are specifitally on point.

woodlots:

rn. covt%zqzts/eakment& reduction in assessed value, according to actual impact. ‘.

vaIuel according. to actual

In the Northwest

assessment and no tax.

‘.

reduction in

covenk@s/easements:

assessed

chari-

Newfound&d

impact.

Prince Edward Island of Financ.e has not been

‘.

“managed lands”.

.’ i

sending tax bills to environmental ties holding conservation lands.’

two taxes .apply: (1) a certain amount per hectare for fire protection; and

of soil productivity. covenants/easem&ts:

I’

for

(2) a percentage, of the cordage rate

that the : : Department

used

-.(M&zagemelzt

In practice,. there is some evidence

lands

.to be based on. market value.:instead

assessed impact.

palities, charities can apply for exemption, but. this does not appear

lands are tax exempt for property tax

being “arable”, some tiilderness (e.g. wetlands) would be ,disqualified.-

Tax Act. In other munici-

purposes. (but -not necessarily business tax).

the same low. tax rate’ ‘9 woodlots: J. applies (as in the case of farmlands), although it is possible for assessment

‘-

- ..

to apply to envirorimental,charities.

rate on farmland. and woodlots is half

‘.

the City of

St. John’s will exempt-real property held or occupied by charitable orga-

is assessed ac,cording to agricultural capability, not market value. The tax

.sgecific ,.

gory of religious- or educational instinot provided-for. I

following . 1 ..

s &zds held by c&.&ties:

“tax-exempt tend td fall into the cate-

the

. ,.

_ .

. -

. I

In the Yukon, Ithe; basic

statute

owners who may be induced to take

is the

positive action for conservation.

Assessment and Taxation Act. Legislation. includes the following provisions: ’ I laan.d.6held h& iha&ies:

(d) Because of the relatively low mone-

-,althougk;

tary values involved., such an initia-

.‘.

tive appears unlikely to. elicit serious.

ious purposes are I i5 there is no pro-cricinn

governmentalopposition.

era1

other charities. -However, tet may,

by regulation,

sions are specifically on point. .

which

reduction ih

to actual _.

.of different

‘,

to.reversal

in the event

the .multiplicity

of a’

1 ,

of ;

: -. . .

ment of ecologically. sensitive lands. .The preferable course to..folloti would be to ‘recommend that each province and terri-

common .themes .which can be, pursued. : Those are described below.

.‘,.

‘.

...

tory put the conservation of such lands on’ an equal footing, with its most preerred : category of property.. That would allow each’government to use whatever.

. :

devices it already feels comfortable

with:

‘,

that would appear,: at this’time, to be the 1 “path of least resistance”: Among the various models available, the notion of provincial rebates has- intel,lectual appeal because it do-es. not “diScrimjnate” against those municipaIitie.s’ with a large proportion of wetlands.and

.. .. .,

which might otherwise complain that any

reason.

‘.

for the comfort

tions, it is not advisabIe to recommend a single formula for the -property tax treat-

to the next jurisdic-

The’ research has disclosed certain common themes: (a) ‘The actual monetary amounts at -stake termto be small. .. (b) This is because the lands which we. would want to cover .(as being ecologically. sensitive) are often already : . in a low tax category for some other

.approaches, taken in the various jurisdic-

there are ‘at least some

Recommendations

‘.

authority.

.chmge of policy.

approaches to preferential tax treatments, the “better’ mousetraps” that are developed in -one. jurisdiction are seldom dir.ectly applicable

of statutory

.This does’ nothing

Because

tion.‘ However,

have already moved in this

the benefit

.ject

New MeaSurei under Consideration of the plethora

level of the officials ‘involved. Furthermore, such initiatives. are sub-

impact.,

In view

direction informally, the governments are acting essentially without

no provisions are specititally on point. vLLI”L,)aciording

”

already

(ej In the case of those governments

woodlots:

r~,,Pnnnf.c/Pn.cPments:

In fact, sev-

have

‘moved on the statutory front.

no provi-

iands .used for’J&ming:

governments

moved in that direction on an .informa1 basis, whereas others have also

I ,,-ther property. .

...

-psychological impact upon property-

Yukon

tax benefit

Was causing them a greater

ic) That does not channe the basic desiri ability of entrenching a specific tax

hardshin than that encountered bvi other. municipalities. That objection does not

treatme.& for conservation lands, because this a question of basic principle, and this may have a positive

withstand careftSSscrutiny, of course, . ,-because those municipalities were seldom collecting

.. : ’

significant taxes on those

wetlands in the first .place, and, hence, the “damage” of any wetlands-related ini.tiative would be extremely low; but in

’ ..

. 3

‘.

politics; “perception is reality”. An exten-

preferential treatment if he/she intends to

sion of the rebate system, along lines sim-

undo the work for which the treatment

‘ilar

has been provided.

Ontario’s

Untaxing

Nature’

., Based upon the above, this paper submits the following recommendations:.

initiative, would appear to be an appropjriate course ta folloW, among those .jurisdictions which already have (or ,are already: considering) However,

where

has an alternative

a jurisdiction

and territories should‘ be encouraged to amend their property

already

set of incentives

‘other kinds of property,

for.

ment/collection

the easier. path

Recomhenkation

One feature which appears particuis the “clatiback”

to ,make

to conservation

No.

7: Those-refer-

‘ences should put ecologically tive lands’on

of tax

benefits upon conversion of property, as in the case of Ontario golf courses. These retroactive tax increases constitute a disincentive to the eventual destruction of ecologically sensitive lands, once those .lands have been subjected to some form of preferential tax treatment. Furthermore, such a clapiback provision seems more acceptable from the standpoint of

of .:

ecologically sensitivg lands.’

set of incentives.

other

a pariwith

private

tax assess-

legislation,

specific reference

would be to merely build upon that other

larly interesting

No. 6~ All provinces

JZecommendatioi

rebate .pr.ograms..

sensi-

whatever

or. charitable

lands

enjoy most-favoured status, The exact mechanism in doing so should correspond to the jurisdiction’s .established practice. for other, most: favoured properties.

No. 8:’ The legislation should provide for a tax clawback on.

Recommendqtion

conversion of the property..

fiscal equity: an owner. should not enjoy .

Recommendation

Nd. 1: The legal fit-

No. 3: The tax treat-

tion which attributes deemed capital

ment of donations of Canada’s natur-

gains (and.potential deemed capital gains tax) to donations of ecologically sensitive real estate should.be.abolished.

al heritage should. be no worse than ‘that now enjoyed by donations of. Canada’s cultural heritage.

No. 2: The ce,mng on deductible charitable expenditures i* (20% .of .income) should be lifted.

Recokmhdation

No.

have no such

ceiling; and there is no policy reason why altruistic -donations should be

.subject to deemed capital’ . gains or a 20%. income limita-

Business expenditures

treated less favourably than business expenditures. If the. Government of Canada insists.on retaining a ceiling, then the ceiling should be the same as in the case of donations to senior governments (100% of income). ..

.’

tive lands. No. 5: Purchases of protective covenants and easements by environmental charities may. continue to be subject to GST but should not otherwise trigger tax, liabilities such as on deemed capital gains. .’

. ; .. :

SUmmary of Recommendations ‘.’ ‘I

tion, any’more than donations of. other interests in ecologically sensiRectimmendation

-.,. ,_

. ..

4/ .’

Charitable donations ” of Covenants .or easements, for the protection. of ecologically ‘. sensitive lands, should not be

Recommendation

.kecommenda&n

: .

other

No. 6: All provinces and territories should’ be encouraged

Recommendation

.to amend their property ment/collection

mechanism

tax assess-

legislation,

specific reference

Recommen&tion

No.

lands

in doing

so should

favoured properties.

ecologically sensitive lands.

or charitable’

correspond .to the jurisdiction’s established practice for other most-.

to-make

to conservation

private

enjoy most-favoured status. The exact

No. & The .legislation should provide for a tax clawback on

7: Those refer-

ences should put ecologically

Recommendation

.sensi-

tive lands on a par with whatever

conversion of the property: I

Atlas, MI.. 1989. Canadian Taxation of, Real Estate. CGH Canadian Ltd., Don Mills, Ontario.

Canadian Parks!Recreation.Association. (undated). CPRA .Nationtil Policy.

Baker,-

Cardinal,

B.D.

I Forestry Studies

i990.

Taxation

Ottawa, Ontario.

in. the

Forestry

Canada,

Action.

Sustainable pp: 141-154.

Island Press.

DevelQpmen,t ..

Canadian Environmental Council. 1991. A Protected fo’r Canada.

Advisory Areas Vision.

Liti,’ Tax Ontario.

Ottawa; Ontario. 88 p.

Canadian Centre for .Philanthropy. and

Charities..

1990.

Toronto,

Canadian Council of Resource and .Environment Ministers. 1979.. Forestry Imperatives for Canada. Presented at, .Annual Meeting, Kelowna, .British Columbia. . .Canadian

Forestry

Taxation and and Woodlots .-

Association.

Private hadsJ in Canada.

1983. Forests Ottawa,

Ontario. Canadian Institute of Planners. 1990.’ Rejlections dn Sust&able Planning. Ottawa, Ontario.

:DonS

pp. 4901492.

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(1990),

‘CCH Canadian Ltd. 1991. CCH I’ Canadian Master Tax &.&de: Toronto,

Brown, J.R. 1984. Sales and Property Tax. .‘. Ontario. Exemptions for Charities. Philanthropist .’ Cox, K. 1987. kildl&

4 (3): ;3444.

‘- :

Cassils, AJ. 1990. Structuring the-tax system for sustainable development.

Ottawa,’

Brenneman, R.L. and S.M. Bates (editors). 1984. Lpnd Saving Covelo,‘California.

19761978.

charnel’. Revue &@otariat

Sector in ‘Canada. Economics Program Working Papers

1988/89/90. Ontario.

J.G:’

Conservation

‘. ‘.

,on

Private Lands. Wildlife Habitat Canada. Ottawa, Ontario. ‘. .. Cox, K. 1989. Heritage Consetiation and Sustainable Develop&izt. J;G. Nelson and S. Woodley, eds. University Waterloo. Waterloo, Ontario.. :

Crowe, I. 1991: Uncertain incentives: taxwise, there’s precious little to encourage environmental protection. CA Magazine

124.(3X 51-52.

Dancey, RCsende.s, Kesler and Puthon. 1991. A Guide to the Goods and Services Tax. CCH’ Canadian Ltd. Don Mills, Ontario. Deloitte and Touche. The Final

1990.’ GST Impact:

Countdown:-

De Boo.

‘. .

Don

Mills,,Ontario. Denhez, M. 1978. La protection ronnement

bati: La Revue

1978:. 605; 670674.

de l’envi-

d.u Barreau :

’ ’

.’

/ :. :. :\

Denhez, Ih., 1990. Technical &tario

Federation

Paper No. 2,.

M. 1991.

Protected

Finance Se+ic&

areas/sites.

Ontario.

and tourism. Address to TI’RAConference on Tourism-Environment-Sustainable ‘Development. Brock University, Catharines, Ontario.

St.

1999. Canadian Donmtions.‘

Ecology Action’ Centre. 1988.. Sustaining Earth: A Bibliography. Ecology Action Resource Centre, Dalhousie University School of, Library and Information

Environment Canada. 1980: .Assessment Procedures in Canada and Thei? Use in Agricultural Land Preservation.. Working Paper No. 7. Lands Directorate: Hull, Quebec.

_’

Cambridge,.Massachusetts..

”

Contact Pilot Project: 1984. University of Guelph. Guelph, &tario.

Fed&-al

‘..

.’

Hilts, S. and T.C. Moull. 1985. Na.tural

Development Branch. Hull, Quebec. Environment Canada and Communications ‘Canada. 1990: Heritage in the 1990s -

Heritage Steward&p: Program, 1985. ,i C.rel+.h “lll”clz.lLy “I UULqJ”. I;lx,,..l+.h UUL+JII) nmtzw.ir\ “IILLLII”.

‘r~r.;rr.x..&+~r “lll”clz.lLy

“I

UULqJ”.

UUL+JII)

“IILLLII”.

Hilts, S. and T.C. Moull. 1988. Protecting On.t+rio’s Natural Heritage Through Private Stewardship.. Universityof Guelph. Guelph,. Ontario.

To-wards a Governtient of Canizia Strategy. Proceedings of Conference, Ed.monton,’ Alberta. October 1990. ‘, Ottawa, Ontario.. ‘:

.. :

‘l+lts, S. ,and,T.C. MouIl. 1584. L&dozime~

Economic Instruments tind Achievement of Environmental Objectives. Sustainable, .

-----^

Greenwood, J.R. and J.A. Whybrow. 199 1. Evdlu&ing PreferentialTax Xreatm&atlfor Agriculttqe and Rural RevitaliFation.. b Proceedings, International Conference 0.n. Property. Taxation. Lincoln. Institute of Land Policy.

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.’ ‘.

Government of Canada: 1990a. Can&da’s Green .Plan for a. Healthy Environment. ’ ._ Ottawa, &ta&-’ .. Government of Canada. 1990b. ‘dreen Plan Chsult@on Nat’ional .Wrap-Up Session Workshop Reports. Ottawa,, Ontario. .. :

De Boo. ‘Toronto, Ontario.

I....

and Culture, January 24,

,.QQua@?rly (1986) 8: 189~19~.

Canada. March 20, 1987. Hull, Quebec.

Goodman,. W.D.. 1986. Charitable gifts of a,ppreciated ca.pital property:- Estates

Drache, A. I987.. Wildlife Check-Off, Proposal.’ Unpublished opinion to Canadian Wildlife Service, Environment

1989.

.’

Ottawa,

Goodman, W.D. 1984; The impact on charitable giving. Pb,ilanthropist (1984) 4: 5: 1. ’

1985. Ottawa; Ontario.

Canada.

Paper.

nwn ““,I.+

Foundation. Toronto, Ontario.

Drache, k. 1985. -Subsidized Property Taxes, etc. Unpublished opinion to Wildlife. Habitat Canada. February 22,

Environme.nt

Cfmdr YYVWY

.’ .. Finnis, F.H. -1979. Property A&ssment in Canada.3,rd. Edition. Canadian Tax

Trial, Canadian Institute for Environmen-’

14RO I,.,,:

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tal Law and Policy: Toronto, Ontario.: ..

and

. .

Tax Xechrzical ‘. .

Communications

Easements and Gifts. Chapter to. be pub lished &2nd edition of Enzh’ronment on

A. (editor)’ of Cha&&

Canada

Finance Canada. I992 .Opinion in letter signed by ..Minister, D.‘Mazan.kowski EO the Parliamentary Standing Committee on

Denhez, M. ‘1992.. Conservation Covenants;

Drache; Taxation

1988.

In $ea&ns Winter (1988).

Heritage ‘Policy Review.. Ontario .

Ministry of Culture and Communications. Toronto, Ontario. .. Denhez,

of. Ontario Naturalists.

., .

Hoagland;

H.E.

1955.

M&raw-Hill.

Principles.

Real

hatura{

Area

Taxation

Ontario.

Options:

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The

A Guide

in Ontario,

Trust to &tar&

Waterloo, Ontario.

Stewardship

Private

‘Landowner’s

to Volun’taiy

Protection. Charlottetown, Edward Island..

;Prince..

Lord, G. et ~1. i978. Protection

des boiS+

et des

esbaces

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nature’ls

: en

de recherche

McGuckin,

C. ,1988.

milieu en droit.’

Ontario

to, notify.

those eligible’ for land-tax. rebate.’ Federation of Qntario Naturalists. In - Seasons Winter 1388: 10. ” McKie, AB. 11988. Properly Taxing Property. Canadian 2: c91-c95.

,Xax (1988)

current

Megarry. 1975. heiarry’s

Manual

of the

Law of Real Property. 5th Edition. London, United Kingdom.. I Morgan, J. 1987. Private Steward&p/ ._ Landowner Contact. Wildlife Habitat ? Canada. Ottawa, Ontario: 1984. _

Natural Areas Journal. issue, July 1984. .

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Heritage Conservation Toronto, .Ontai-io. 0ntari.o

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Special

1990,

The

Natural

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and.

Communications. 19.90.. Proposats. for Legisiatioiz. Ontario Heritage Policy Review. Toronto, Ontario! Pearson, M. 1990. Xma?ion.and Environ-: mental Policy; So&e Initial .Evidence. Institute for~Fisca1 Studies: London, United Kingdom.-

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Revenue Canada. i 986. Deductible ahd

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Canada. 1988.

Properties.

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. ‘,

Gifts of Capital’

Charity. Bulletin

’

No; IT-l lOR2,

Revenue’Canada-Taxation.

and

Others.

-No. IT-288R,

‘. ‘Revenue Canada Taxation. Ottawa, Ontario.

May, 1988.

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Gifts

and Official Donation Receipts: Special Release. %nerpretation Bulletin No. ITI IOR2, Revenue Canada Taxation. January, 1989. Ottawa, Ontario.

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.. :

..,

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Silverstone, S.‘l974. dpen space preser.. vation through conservation easements. OsgoodeHallJou~al 12 (1); ; ’ Supply and’ Services Canada. 1‘992. Regeneration: T&-onto’s Waterfrorit and the .Sustainablb City. Report of.the, Royal .’ t Commission on the Future of the Toronto Waterfront. Ottawa, Ontario. .g

‘. ‘. .’

D.onation Bulletin

Gifts

Sustaining

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Internation,al

C&llenge

for

1998.

the 98s. -,korth American

Wetlands Conservation Council (Canada) Secretariat.

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Notes to Recom@aehdationS -

of the Forum

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and

wildlife

Conservation.

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Project

3.5.

Island

Sw.aigen, J. 1979. Preser-ving Nakral Areas in OMario. Canadian Environmental

Trust. Charlottetown, Island.. j

Law Research

‘. Weeks, N. 1979, Conserviztioti

Foundation.

Toronto,,

Ontario. Tingley, D., F.P. Kirby, ,and R.D. Hupfer.

Prince

Nature Edward

Easements

and the Niagara Escarpment. Sierra .Club r of Ontario.Foundation. Toronto;Ontario.

1986.’ Cohsekziation Kit: :A Legal Guide to Private Conservancy. Environmental. Law Centre.

.Rdmonton,

Alberta.

(Also

updated l!$S>.

Conserving &zbitat has become a riationalpriority

for all Canadians.

: :

-Tax Treatment of Don&ions. and Natural Heritage 46 A detailed series :

of Cbltural’ . .

the rate at which

which

given

biologically

important- private lands. continue

treatment of sensitive lands

‘.

protect

Appendix A.,‘.

summarized below.

to be .transformed,.one is reminded of a quote from the President’sCouncil on Environmental

Calculation No. 1 explains the t’ax imphcations of a single donation .of natur-

Environmental

al heritage.by’an

follows: .YIt is neither .possible nor. desir-

as compared

charity.

with cultural property

are

Quality

individual to a registered

This individual

income of approximately

has -a .taxabIe $50.000

no,ted

in .the

Stanford

;

land; or protect all of the nation’s natural

a year

and owns land which if gifted is subject

and environmental

diversity. Shifting^eco-

to capital gains tax. The.example

nomic

government.

rewardedwith

current- 1

a tax bill of $144

priorities,

deficits’,

and greater demands. for a’lessening

;

conservation easement or fee title to a registered charity. Calculation No. 2 features the donation of natural heritage by an individual to government. In. this example; the

-44.

.. :

;

cations of such a donation: In this. instance, as outlined in point six of the. introduction to the four calculations below;

has a similar- taxable income

the. amount

of the donation

deemed to be $106 000 which in fact is the same value as the. adjusted cost base.. This alternative allows a. registered .chariI ty to mitigate.thetax liability for a’ landowner wishing to donate important

of $50 000 and, for’ease-‘of. comparison, the capital gain &value of donation are the.same.. In- this instance, however, where the donationis to government, the landowner pays no tax for the first three: years and minimal tax for the ‘fourth year. This -indicates to a landowner ‘that if any

’

natural .heritage; however, this does not, compare with the far more beneficial tax -treatment of land donated directly to the Crown or the more favourable tax treat-

donation is to be.made when comparing it to the tax liability of donating to a .registered charity. that. they should look ‘very seriously at donating natural ‘heritage to .: .the government.

select .proceeds of ‘disposition on gifting of natural heritageto a registered charity. In this example, the amount of the donation is. artificially reduced in value ignoring the current market value of the -property. so as to minimize the ‘tax .impli-

000;

hardly incentive for private landowners to be induced to protect Canada% important natural heritage through donation -of

.landowner

own all of the

leaving the owner with a capital gain of. :. the tax burden of the private sector all -suggest that the .primary reiiance upon approximately $500 000. The total,tax payable for this. particular individual mak..the, public sector mprotect and preserve the country’s natural resources wili no ing $50 000 a’ year’is $144 449. This longer be sufficient to’ the task. .We have example illustrates that, in situations. to rely heavily on private .landowners and where we have a landowner interested in ’ organizations to play a greater and greater. conservation that is .land rich and cash role in protecting these resources”. ‘poor, their generous .c.ontribution .to Calculation Noi 3 is- the election to Canada’s natural heritage would be

:’

It. is as

Law Journal.

*. able. that the government

ly values the property at about .$6OO 000

,’

initiatives

Canada’s natural heritage,

of calculations

,illustrate the income‘tax donations of ecologically

While there is a long list of s&cessfuI government

ment received by art. :

.. ‘, :

46. The case sttidiek ini\ppemiix A tiere cornpitted by tax lawye’is in a prominent law fum in Western Canada on behalf of a private’flient. This wrirer has been advised in writing that’these materials may be .

.. ‘. reproduced herewith, since the c&sent of the client has ken obtained. However, the lawfirm hasnot ken @en authorization to disclose further inkwmation than that which is presented hex:

._ ‘. ;. . .

Calculation No. 4 is an example of an

the donor-will increase by $5 OOO’in

equivalent. donation of movable cultural

each year after ,the year in which the .donation is made. .

property, i.e. artby an individual to a des: ..

ignated instirution. One look at this exampie wo,uld readily indicate .that art seems ‘to be given far higher priority foi conser-

‘3.

The donor has no other capital gains.

deductions

.. :

‘or credits in the .year of

.many of our great works of art. have been . inspired .by our natural heritage. To illus-

trate this point, consider .an example wherein the owner of a‘painting of an

the donation and subsequent years; .. .The donor-has utilized his or herlifetime. capital gain exemption.

The individual is taxable at the maxi-

endangered species is donating this paint-

mum federal rate of 29% per annum

ing to a designated institution. This dona.tion would be subject to ‘no capital, gain

and this rate will continue during the.

’ carry forward period of the donation.

tax and would pay no income- tax for a

Provincial tax has been calculated at

minimum of five years. If, ‘however,

the rate of 46.5%‘of federal tax.

this

square mile in Canada that was .home to this endangered species and. wished to donate this section to a registered charity, the charity could in fact bankrupt the landowner in the case of Calcuiation No. 1 by accepting the donation, or in the case of Calculation No. 3, minimize ‘the.tax’ ‘. that they would pay but only make it marginally beneficial.. -,

.. _

and has n,o other charitable or other

” vation than ‘does natural heritage and yet

landowner were in ‘possession of the last

Surtax. has -not been included.

The following calculations are relevant to each of the examples Total Taxable Income = .. .. Taxable Capital Gain + Other .Taxable Income Capital. Gain = : Fair market value of property. disposed adjusted cost base of

property

Incoye-Tax ‘Consequences of Heritage

for Donations .: ..

.Ta?~~(&~‘~i~~~n,

Federal Tax Donation Credit = Introduction

29% of lesser of: (i) the amount of gift (ii) 20% of income earned in

The four. calculations

below outline the

any year-

.. .

general tax consequences of a donation of land by an individual. The following facts have’been assumed in each of the. examples.

Net Federal Tax = ., ‘. ‘Federal Tax 1 Federal Tax Donation Credit

1..‘ The land has a present

Total Tax =

fair market

The individual

Net Federal’Tax + ProvincialTax

.value .of $60~ 000 and an adjusted. cost base (tax cost) of $100 000. 2.

donor earned other

income in the year of the donation of $50 000 ‘and the annual income, of

.. .

’ ‘,

Cal&atZo~ Natwk

No. i: S&&q Donation

H&itage

Registered

by an Indiuidu&l to.

Cb&tj

This calculation

‘_

outlines

the tax conse-

quences of an individual making a single

‘.

donation ‘of land. Such .a donation results in a large increase in income’ and income tax liability in the vein in tihich the donation

is made,

which

is significantly

greater than the deductions for the donation (because : tion;

see

of the 20% income limita-

7(E)’ below).

circumstances,

only

Under

these

$43 500 of the

$600 000 donation is used as a deduction due to the 20% of income limitation. It should be noted, however, that if income in the years subsequent to the donation was higher than has been assumed,. a ‘. greater portion of the ‘donation could be

. :

claimed a6 a deduction.

3. Other Taxable Income

50000,

55 000

4. Total Taxable income

425 000

5. -Federal Tax (29%) 6. Amount of. Donation 7. Federal Tax Donation ICredit 29% x lesser of: (i) gift ($6‘00 000) (ii) (20% of income per year)

’

60 000

,-65 000

70 000

‘75 do0

55 000

60 000

‘65 000

70,060

75 000

123 250

15 950

17 400

18356

20 300

21.750

600 000 ‘.

NIL

ryL

fyIL

Nli

‘NIL

’ (3 190) ..

(3 480)

(3 770)

(4 060)

(4 350)

‘.

;

: ., (24 650)

8. Net Federal Tax

98 600

12 760

13 920 :

15 060

.16240

.9. Provincial Tax

45 849

5933,:

,6473

7012.

7-552

8 091

,144 449

18 693

20.393

22 092

23 792

25 491

IO: Tota; fax

Table A-l: Cat&ations

for

a Single Donation

of .kand to a Cbarity

17400

Calklatidn

‘.

No, 2: Donation’of,

Natural Heritage Government.

by Individual

’

.A second alternative is to make the donation to the Crown, &hich wiI1 have the same general consequences

described ,in

Calcuiation No: i. However, unlike, a donation to a charity, .there is no 20% income limitation on the amount of credit which

can

Accordingly,

be claimed

in any year.

the entire donation can be

used as a deduction if there is sufficient income. ‘If it is a gift of qualified property (such as, land which is capital property),

. .

the donor can select the amount of the proceeds of disposition (within limits), which amoumwiii constitute the amount’ of the donation (see Calculation No. 3).

50 000

55 000.

‘60 000

4. Total Taxable Income

425 000

55 000

fio:ioo

5. Federal Tax (29%)

123.250

15950

s ;7400

N.lL

NIL

.3. Other7axaple

Income

6. Amount of Donation

.600,000- ”

’

65 006

70 000

75 000

65QXI

70 000

75 000

18 850

20 300

21 750

NIL :

NIL

‘NIL

. ‘. 47

7. Federal Tax Donation (123 250).

(15 950)

NIL

1 9:Provincial’Tax 9 ~Prnvincinl’Tnu

NIL

1 ;In0. Total Tntnl Tax Tay

NIIj NIL

Credit: 29% of donation to a, maximum of’income untilthe e.ntire donation is u&d 8. Net Federal Tax

. ”

(17 400).

pIi -.

(17400)

NIL

1 450

20 300

21 750

’

: 1

NIL

Table A-2: Caku&tions

-i 1

N’lL .N’lL

‘1

674

9440 9 440.

NIL NIL.

2124 2 124

29 740.

for a Donation

to the Government

10114

1 31 864

I 1.

Calculkion Pkcee&.of

No,

3: E&&on

Disposition’

to Select

The following

km G@ing

example

gift to a registered

assumed

charity and that the

of Natural H&-&age to Registered

parties elected to have the proceeds of its

Cbarity ..

&her section. 118.1 of the I&ome KZX Act, an individual donor can agree, with.

dis&sition be. $100. OOk, equalling the adjusted cost base (tax cost) of the property. Accordingly, there. is a significant

the registered charity as to the proceeds of disposition for a gift of capital property within certain limits. If the proceeds of

decrease in tax paid in the year of the donation from the’ previous calculations and a decrease in, the amount of deduc-

disposition are chosen to. equal the adjust- ’

tion.available to offset income: Again, due

ed cost base of the. property,

to the 20% income limitation,

gain

for the donation

amount’selected-as will also. constitute

no capital

will result.

The

the deemed proceeds. the amount

_. ;

very -little

.’

of the ‘donation is utilized as a credit ,in this example.

of the

donation.

;

.. :

4. Total Taxable Income

5. Federal Tax,.

50 600

55 000

: 1.4500

15 950

6. Amount of Donation

‘7. Fedekal fax Donation Credit 29% i lesser of: (i) gift ($606 090). (ii) (20% of income per year) .

(2 900) *

.11 600’.

9. Provincial Tax lO:TottilTax-

-17400.

‘-NIL

. NIL

(3 190)

65 000

70 000

75 000

18 850,

2d 300

21 750

,NIL

(3 480).

NIL

noj

(4 050)

‘:

NIL.

(4-350)

8. Net Federal Tax

000

60 000.

‘.

.I;

760

13920

15680.

5 394

5 933

6473

-16 994

1‘8 693

.2b393;

7012 : ;

‘16240’

17 400 ,

7552

8 091

23 792

.25,491“

’

22 092 ”

: Table A-3: Calculatiotis for a Dqnation

to a Charity wit+ Election on Proceeds

of Disposition I

.’ :

.’

.. ~akuk&on

Weritage

by an Indiviqlual to a hstitution

Under subkctions

118. i(l)

.. ‘.

of Movable. Cultural

Designated

No..4: Equiv6lent

Donation

and (3) of the

Income

Tax ACt, ti donation

prop&y

such as art to a designated insti-

of cultural

tution results.in no taxable capital ga* to the .donatidn. As weil, there. is also no restriction in the ‘amount of gift to be used as a credit. Accordingly,

,while the

amount of donation is unaffected, there ,is no increased inconie. ‘or tax payable as a result of the disposition. ’

This results in

significant tax savings for the entire fiveyear period for the donation.

1. Capitai Gain

G-

.’

2. Taxable Capital &in

NIL.

1 1 3. Oiher Taxable Income 4. Total kaxable Income /

-_’

1 .50 000. : I 50 000.

1 55 000 I

-NIL

NIL I

NIL

NIL.

NIL

.I I

NIL

14 500

15950

(14 500)

(15.950)

NIL

.NIL.

NIL

I I

60 000

j5: ($30

-6OO’OtiO :

6. Federal ‘rax (29%)

NIL

5. Amount of Donation

,’

60 000

‘.

’

NIL

I ‘-NIL

” NIL

NIL

65 006 ~~ -.--

70oon - ---

65 000

75nnn - --_

70 000

75 000

NIL

18 850

20 300

21 750

~ (18 850) _

(20 300)

(21;750)

‘: NIL

N11,

17 400

.. 7. Fecferal Tax Donation .. . Credit 8. Net Federal Tax’ 9: Proviricial Tax

I 1 10. Total Tax I

I ...

NtL

Table A-4: ~alculuti&s

for

NIL

.. .(I7 400) , -. .NIL : I

I I

’

.NIL ‘, .NII ..-

NIL

a ‘Donation td a Designated

: . .

NIL

.tilL

1\111 I.IL :

Ihill .,L

I : ill ‘-I-

NH ..-

I ..

Institution

hill ,..,I-

” .:

: .,’ ‘. , .

Four Ontario Property Tax Case Studies

receives

The following four case studies-are repro -duced,

by permission,

. .

income tax purposes and does not pro-. vide enough economic incentive for the owner. He- feels that regardless of the

‘from the lucid

paper prepared by, Ionson (1988). They are not 100% typical; on the contrary, Ionson chose,four cases in which the property’ tax system had. gone somewhat astray, in her view. These cases illustrate

rebate,, the taxes levied on the. property &e too high for him to maintain

the need which existed for an initiative.

Appendix B.

it in an undisturbed

state. Thus, the recently announced Conservation Lands Rebate Program would. not.act.as an incentive to this natural area owner to maintain his natural area in an

such as “untaxing nature”, and perhaps today would be treated. differently under. the- Conservation Land Tax Reduction Program. .-

undisturbed state.

It appears that in this case the problem lies with the assessment class of the property. There ‘is no-doubt that the

Case Stlidy No. 1: This case study involves a ‘forested area not far from Toronto, near Highway 404

the Managed Forest Tax. Rebate

on the forested portion of his property, but this must be declared as income for

p.roperty is worth over $36 000 as a residential property, 1@en its prime location I and size ,,A allU n--n apyarent value of the estate

and Woodbine Avenue. The owner’of this property ‘wishes. to maintain it as a natural area .as long as he lives;. however, the rising taxes on the land in conj,unction with his. limited pension.mcome are causing him concern. He has appealed the assessment and written

letters to various. government .officials, including the Premier of the province, all to no avail. He has said that he may soon be forced to sell the property because he cannot afford to pay the increasing taxes. Estate residential development will likely

result as much of the surrounding land use is of tK.is type. The. present assessed value.of the property stands at $36 895. It is assessed’as residential land and is billed for garbage pick-up. The increase in taxes 50

over time is outlined in Table &l . The owner feels that .the. tax system is penalizing him for holding vacant, non-’ productive land, even though this land is.a beautiful natural area,’ supporting many species of plant and animal life. It is ‘doubtful even that. the Federation of Ontario Naturalists (FON) could accept a donation of this land, as the annual tax on this land would represent 38% of the total taxes paid on the 13 nature reserves presently owned by the FON:The

owner.

*Information supplied by cnvner

‘.

Table B-l: Taxes Over Time qn Ca&+tudy

No. 1 Land

. ‘,

. . ,

residential;

properties

in ,the .area.

However, it is not yet a .residential prop -erty, and if the owner

had his way; it

never. would. be. If an .assessment existed for significant

in the residential

’

the 4’3’ acre marsh.rose

from $945

natural areas, the

increase is due to the fact that the residential class factor is 4.5% and the agri-

could be’assessed

at its

“value in natural area use” versus its fair.

cultural class factor is 2.1% (the class’ factor is multiplied by’marker value to

‘market vahie, the. FON could likely afford

arrive at the assessed

to add it to its roster of nature reserves

taxes are levied). The. change from .classi-

:wishing

to visit a natural area close to

home. Farmland in Ontario is assessed at its.“value-in

farming

fication would assessed

as .agricultural itself

result

value

to residential

in an increase

of 214%.

The

owner’

appealed his assessment in June of 1985,

allow’ farmers to continue their business,

but was told that because the. marsh was

regardless of how land values and corre-

man-made and controlled, he must pay the assessed taxes. ‘:The owner‘feels that the provincial government sees his,marsh as a private luxury which he sh,ould expect to pay higher, taxes on.’ The increase in taxes’on the 43 acres as a. result of reas.sessment in -1984 was.

CaseStudy

No, 2:

.’ The second case study invo1ves.a 20 ha’ (50 acre) parcel in Kent County, Dover Township, Ontario. This property lies to the east of Lake St. Clair, and.forms part’ of the Lake St. Clair marshes complex (this is one of 36 .Carolinian Canada. sites). It is .approximately 20 km southbest of the City of Chatham: This privately. owned marshland is surrounded by ‘cash .. crop agriculture characteristic of Kent County. ‘. .The 17 ha (43 acre) marsh (excluding. dikesj was created in 1984.with the help of Ducks Unlimited Canada. Before this

time, the property was used for agricultural crop ,production, generally corn. The zoning of the property remained agricultural but the assessment class changed from agricultural to residential when the marsh. was created. This was coincidental to market value assessment implementation in the township in 1984.. Other .marshes which had.existed in the area for 35 years as wetlands had their assessment classes changed from agricultural to resi,. dential at that time. This is because marshland is considered recreational land

‘,

value on which

use” in order to

sponding taxes are rising around them. It has been suggested that ‘natural area owners receive the same consideration.

‘tissessment class. The assessed value .of $2 520, an increase of.267%. Some of this

and make it available, to Torontomans

’

is included

class

owner would not likely be forced to sell. If the property

which 1

. ‘.

‘.

$436.30 (an SO% increase). The natural significance of the Lake St. Clair Marshes cannot be overstated. It has been estimated that in Dover Township, only about 10% of the original wetland area remains. The Lake, St. Clair .’ Marshes rank second only to the. Long Point Marshes.of’Lake Erie as the most important waterfowl staging areas in Southern Ontario during migration. ‘. Marshlands themselves, as a specific wetland type, are generally rare throughout the province. .Identitlcation of this area as a. Carolinian Canada site’ indicates sign& cance.on a national scale. .’ The .owner of the parcel .estimates that the revenue produced on this.land is .approximare@ the same, tihether it is used as marshland, or as. farmland ($175 to $200 per acre). -Revenue’ from the marshland comes.from fees charged to hunters during waterfowl hunting season ano muskrat pelts. Annual revenues on the parcel thus range from $7 525 to $8.600 (calculated on ‘the 43 acres of marshland). Estimated maintenance costs range from $6 000 to $7 OOO’per year,

‘:

‘.

.’

51 .’ ,’

.. ._

: ..

netting the owner approximately

$1 500..

of the prop-,

erty because

‘he was not ‘as committed

the property is bemg.put:‘Also, -they state that, in their opinion,“.... existing tax rules

production

to waterfowl

as he is, .the, logical

move

would be to return the land to .agricultural production. crop

within two years, a good

could: be produced,

with much-

reduced taxes and a ‘possible 60%. rebate:

it does not recognize

environmentally

the

sound land use to which

can eventually be forced to damage .the ‘environment

to nav the taxes-(i.e. I

fill the

swamp to form a building site .in order to<

a manager of many of the marshes’ in the

pay the taxes or even a.field).‘7

area (his full-time occupation) classification

that he is

his..marshland.

of marshland,

The

which

is.

zoned ‘agricultural’with ‘no provision for erection of a.residence,. assessment

purposes

as residential for

is clearly illogical.

The. Toronto ‘receives

Field Naturalists’. Club

(amounting to ,$659.05 .on the.82

but still ‘protests .the assessment classifica~ .tion of its’ nature reserve ‘property. This

address the inequity natural area owners

: even more inappropriate. ..

The Toronto Fiefd Naturalists’ Club owns. a 35 ha (87 acre) parcel of forested Wetland in Uxbridge Township, Region of

uralists’

clubs are taking action.in,

’

,’

‘.

.’

the’

long-term interest ofthe public but this is

C&e StudyNo.,3:.

., ..

apply to this land,. may not adequately

This case study has egplored the Situ- ’ feel .exists in the assessment system. It ation revealed in the.,survey where ,an seems “unfair” that organiiations such as own.er disagreeh with the. residential .. the Boy and Girl Scouts and the Red assessment class of his/her property Cross. .are property tax exempt while pat-, because of physical limitations for resi- .. uralists’ clubs’are not. By maintaining dential development. In this case, restricl nature reserves, it can be- argued that nat. class..

acres)

for natural areas is clearly illustrated : this case.’

the assessment

the Managed Forest Tax Rebate

may be ,another situation where the Conservation .Lands Tax Rebate, if it does.

tiv.e zoning-made

.’

‘.

The need for a different assessment class in

are a major cause of the environmental degradation we see daily. Landowners

It is only due to the fact that .the owner is

willing to maintain

.’

the assessment cl@flcation

After- property taxes< the owner is left : with about $500. The -owner says that if

-Durham, Ontario; It qras purchased in the ‘1970 to l973*period and has been maintained as a nature reserve..It .functions as a wildlife sanctuary, a corridor for migrant. species and helps to protect the. quality’and quantity of.‘gater in .the Uxbridge Brook: Naturalists’ clubs in Ontario are sub ’ ,ject to the same. treatment by the :tax system as are private individuals.. This floodplain property is classed as reside& tial land for assessment purposes, .with a market value assessment ‘of .$73 000. The 1985 taxes, levied on the nature.. reserve _ were $1 181.60. -The Club has protested

cance, is per&Cd dential property. -.

..’ .:.

by assessment as r&i-’ :

case (hidy No. ‘4:

‘. :

This case study involves property on the -. northeast shore of Lake Erie, Ontario and is perhaps the most dramatic of the case j studies .presented here. The property . studied. is made up of eight separate .. parcels,. totaliing over 9d ha (223 -acres). The owner is a .retired orthopaedic sur-e geon iho resides in Buffalo, New York, but who spends his summers at his-prop‘. erty on Point Abino, Ontario. Point Abirio is in the- Region of Niagara and.the prop-. , &ty is within the limits of the town Iof. ’

’

.’

Fort .Erie, .Township of B&tie. The devel.

_’

not recognized in the tax .system. The -holding of v.acant land, no matter’ for what purpose or what its natural .signiti-

.’

: ..

-’

: ..,

‘.

opment houses,

area. 1. also contains an .excellent example

in the area is’summer resort. many of them’ owned by

of a yellow birch’ forest (nothing “was seen’during

American citizens.. The property is within the Carolinian Canada site known as the Point Abino as an. Ontario Ministry of Natural Resources. (OMNR) ,Area of Natural

ning to expropriate

tive-dunes

the life science spe-

The property

is comprised

.’

‘.

parcels, three of which are zoned hazard land and the remaining .five are zoned

.. :

rural (see Table B-2). .Under the rimnicipal zoning’by-law, uses allowed in the hazard zone include;. agriculture, parks, play-

property is composed of an amazingly ‘diverse grouping of vegetative:.communi-. : ties. The first community, on the Steep,. : lakeward side of the dune is composed of white .cedar; ‘red cedar; common juniper,

agricultural uses, a one-family dwelling on one lot, and a few miscellaneous home occupations.

hoptree, .&id red oak. This community is under a great.deal of stress due to erosion in’the area. On top of the dune, a red oak, sugar maple, hemlock community is found, The’ third community on the .flat,

of eight

grounds; tennis courts, lawn bowling ‘greens, picnic areas, and boat-launching ramps. New’dwellingsare not allowed. Useslallowed in the rural zone include: all

’ The taxes on .these- parcels. of. land have

.’ ‘e

’ .

‘.

increased by 1X1%, or more than doubled from 1979’to 1986, so that the total taxes in 1986 were- $12 592.04. The,assessment of these parcels has not changed ‘over

to the south of the wet pasture ‘land is

that-timeperiod.

quite wet and the vegetation’there is. dominated by silver maple and black ash. : In the low depressions in the dune, red :,, oak silver maple, tulip tree and, bladder1 nut are found. Walshe.in I.his.1969 iBP survey -ihad this to say about ‘the

In. 1979,‘the.owner appealed the ,.assessment of all parcels except the farm parcel before the Assessment Review Court.. The grounds for .appeal on parcel

property,‘! .:. [it] offers a great diversity of. : -plant communities in a -relatively small. :’

zoned hazard land and No. 5 is ‘a small triangular . slice of land. Assessment informa-’

1, 2, 4 and 5 was “limited use due to. restriction”. Parcel,.Nos. 1, ‘2, and 4 are

One of the parcels is classed as farmland. for assessment purposes -and the other seven are classed as recreational or rural development units; which are sub.. classes of the residential assessment class.

moist land to ,the north of the dune .is composed of yellow birch and silver maple. The northern edge of’the woods,

,.. 53

.‘.

jV&

’ -.

The owner

,.pastureland and vacant land which had been topsoiled (i.e. the-topsoil-was removed, leaving bare bedrock) by the previous owner.. The south half of.‘the

cialist in the Parks’-Branch of the ‘OMNR says that the owner represents, “...a classic example of private stewardship.” ‘.

the .guest of the owner. In 1976, Ian MacDonald did a vegetative survey as part of the ANSI program for the OMNR. The nor&half of the property is ‘wet

.’

and ‘beach area .would cause

today, Tom Be&hey,

found on the property,:living in a cabin as

’

to be

won the fight .against expropriation- and

.In 1970, Gus Yaki of the Toronto’ Field Naturalists did .a floristic survey of the property. In the 1970s Craig Canapbell pf rhe University of Waterloo. studied the

the .prope$

erosion and sand blow-outs:

completed an International Biological Program (IBP) checks&et -for UNESCO.

’

the grounds that public use, of the sensi-

ANSI over the past two decades. hr 1969, Shari W&he of the -University of Toronto

Forests (now’GMNR) was plan-.

used as a :public beach and campground area.‘The owner and many concerned naturalists opposed the expropriation on

: Significance. (ANSI). This property has been an intensively studied part of the

and .Fowler’s.Toad

’

‘In 1970,. the Ontario-Department I&ds.and

Snake

better

summer

searching in.~gonquinPark).”

‘Sandland Forest, which is also designated

Hop-Nosed

a whole

.’

‘.

, tion was requested. for parcel No. 6 and the grounds for appeal on parcel Nos. 7

the assessment and taxes .on this land are oVei twice that of the 40 ha (98 acres) of

and 9 were that the assessment was too

farmland. 1, 2, and 4 are close to the water, they

assessment remained unchanged

‘, are assessed

the parcels further from the water (such

No. 1, but an accurate

acreage value ‘is

as No. 7). The Assessment Program Policy

not available): Both parcel Nos. -2 and 4 are zoned hazard land by the munic@ali-

Manual gives the. assessor guidance -as-to

Because property further to the east, along Point Abino is high-value summer

home development;

extremely limited. The owner recogmzes and shoreline

these parcels are extremely

sensitive

‘.

the. waterfront parcels ‘is-correspondingly high. However, the owner conte.nds, this

state. His argument is not Fith the hazard

.does not take into account that the pre-

zoning of the land, but with the hiih levels of ,assessment and taxation of the land which do not take into consideration the : restrictions on development. of the land, nor its riatural. significance. -The parcel. No.. 1 lots are barely 9 m (30 feet) deep ‘_ due to erosion and high water levels, yet,

sent zoning of these parcels prohibit him from developing them. He feels that in return for maintaining a part of Ontario’s natural heritage, which he is. Willing to share with-others, he is penalized-by the tax system p;hich does not recognize this.

‘~

‘.

farm/residence

’ ‘.’

the market value of :

disturbance and wants only to. see the area maintained in its present natural

what increase in value occurs aS property gets closer and closer to .a body of water.

of the land is ‘.

that the sand dunes

‘. .:

as being worth more than

Nos. 2 and 4 (it is also high on. parcel

ty, .thus development

It is obvious that because pareel Nos.

high. Th,e owner lost all appeals and the The tax per .acre is highest on parcel

‘.’

. . waterfront

.A1 (iural)

,’

FARM

; 97.95

7 300.00.’

REC

6.62

22 650.00

764.17.

1 613.37

16.47

2.371 .OO

5 005.88

756.18.

. 5:

.f3. :

smal! slice

REC

2.90

300.00

31.40

topsoil removed

REC

36.06

1 900.00

198.99

66.30

‘22.86

4j9.92

1’1.03

.18.34

1 .7.

beh]nd waterfront

topsoil

removed

Al’

REC

‘FiEC

63.88

8.25.

5 300100

544.81

1 171.35.

+oo.oo

41.87

88.40

..10.72

; Total

.’

223.75

Table B-2: Assessment

aitd Tax&m

5 954.16

of base Study No. 4 PrLperty

12 592.04

.-This case study illustrates the situa-

natural area protec-

tion should distinguish betvyeen the two’

property has physical limitations for resi-

types of residentially assessed natural area

dential .use, yet’ was assessed as- residen-

property. This is because the residential

tial land: It also illustrates the discrepancy

assessment of natural area properties that

between land classed as farmland by the

are .in residential use .may be appropriate,

assessment system, and vacant land class-

while

es as residential. It also shows a situation ’ where land is zoned to reflect its “best assessmemsysteni

area,properties

An ‘interesting result is the large pro: ‘.

portion of owners of farm assessed prope&y who disagree with the farm class .of theirproperty

Discussion In all four Ontario, case studies, the natural area land is classed as residential land for assessment purposes, .but no buildings are on the land: (Case Study No. 1 is a vacant woodlot, No. 2 is a marsh, No. 3 is a floodplain, and No.. 4 is a San&and for-. est). A.further ,injustice is perceived .by. the owner of the ,marsh. in Case Study No. 2. On ,his marsh, there is physically no possibility .of building. a-house on the property, as .long as it is a marsh,- and further;. the agricultud zoning on .the prope&y prohibits residential development.. A. .similar situation ‘exists for the ,owner in Case Study No. -4, because

much of his

(24%).

one tiould

think

interesting that the prime reason for dis-. agreeing with the assessment class of pro@ty was similar for both agricultural

market value assessment

’

deals with”thjs

situation. It does not appear that the assessor takes into account the difficulty, expense,

or even impossibility

‘. Y

‘of devel-

use’

of unused land, even :

do not appear .to be satisfied with how

land is ioned hazard land, ‘with-no .provi-

the development

‘.

and residential lands. The reason given most often was that the land is eithernot _.suitable for, or has limitations for use as what the assessment class is. Taxpayers

oping the- land for the assessment. class

sion for residential’ development. The case studies reveal the large extent to which the assessment system’encourages

‘.

that -because ,of the reduced taxes on farm properties, owners of these’propkrties wduld be. satisfied with the. assessment class of their properties. It is

property which is assessed as .residential

when the land use planning system is regulating to mmimize development.

of which may .never be able to be used residentially may not be appropriate.

cannot accommodate

this situation. ,

that of natural

which are not in residential use. and some

use” being its natural state,, but where ‘the :

system to promote

tion w’hich arose. in the survey where

Once .again, this is clearly the situation in Case Study Nos. 2 and 4. Not only.

do these properties have physical limita: tions for residential development, but the zoning in place prohibits residential development.

One could perhaps argue

55’

that the ‘possibility .exists for rezoning to : The actual amovnt of natural area allow residential use.in the future. land which. is classed as’ residential land However, what if this doe,s not happen? ,, (approximately 50% in the Survey) is a SVhat does the owner do to recuperate surprising result. All the natural areas surveyed are in. urban fringe or rural areas, * taxes foregone? An additional finding. regarding rural and it might be ‘expected that a larger. property assessment is that there appears proportion of them would be assessed as to. be a ,very low awareness of the farm farm properties are likely rural estate-q$e forestry exemption feature of farm assess-. properties, but conversely, a large proment. One would. not really expect resiportion of them (20%) are vacant, recredential class property owners to be aware ational land. Any change to the tax

of the,exemption.

However, the farmland

owners also appeared to be ignorant of: an exemption

which they likely receive.

.. Given tharall

of them own’part of a’nat-

;

ural area; most of the,m likely receive the .farm. forestryexemption.

Perhaps

Only 385% of the agricultural assessed owners knew about the exemption. :

this ,’

result is not that surprising, given that the exemption ‘does not appear on the tax

‘,.

-: .’

form. It, does seem illogical to give the exemption to promote or make it possi-

ble for the farmland ,owner to maintain ‘10% of the farm as woodland, inform

and’ not

him or her of the-exemptCon.

txrhen it is considered that only 38.5% of .’ the farm assessed owners knew of t,hk : ’ exemption, it is quite remarkable ‘that

” 31.5% of the residential .assessed owners are aware of it. Perhaps, this is because ‘the residential class owners are .aware. of all the advantages given to farm class .prope&es (valuein use. assessment, 60%.

.’ .’

. .,

. .

‘.

I’ .-

‘rebate, and farm forestry exemption).-.It seems ‘that the intent .of the-farm forestry exemption, to influence farm owners’ to maintain a woodlot, .cannot be realized .’ due to its lack of publicity.

.’ ..’

‘. .I :

~. .

Sustaining Wetlands Issues Paper Series Paper No. 1992-l. Wetland Evaluation Guide. Final Report of the Wetlands are Not Wastelands Project. By W.K. Bond, K.W. Cox, T. Heberlein, E.W. Manning, D.R. Witty, and D.A. Young. Published in partnership with Wildlife Habitat Canada and the Canadian Wildlife Service, Environment Canada. 121 p. Paper No. 1992-2. No Net Loss: Implementing !No Net Los.9â&#x20AC;&#x2122; Goals to Conserve Wetlands in Canada. By P. Lynch-Stewart. Published in partnership with the Canadian Wildlife Service, Environment Canada. 35 p. Paper No. 1992-3. Canadian Peat Haruesting and the Environment. By D. Keys. Published in partnership with the 1990-1995 Canada-New Brunswick Cooperation Agreement on Mineral Development and the Canadian Sphagnum Peat Moss Association. 29 p.