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Recommendations
for Budget 2005
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Realizing
the Full Potential of the Ecological Gifts Program
Summary
Recommendation: Amend the Income Tax Act to: 1) reduce
the capital gains inclusion rate for taxable income on ecological gifts
from 25 per cent to zero; and 2) recognize all donations of ecologically
significant lands as ecological gifts, including the donation of lands
held as inventory.
Benefits
for Canadians
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conserves
land critical to maintaining the ecological integrity of Canada’s
national parks and other landscapes, which is essential for providing
habitat for Canada’s species at risk and other wildlife
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enables
all owners of ecologically significant land to participate fully
in the conservation of Canada’s biodiversity and natural heritage
through the Ecological Gifts program
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helps
meet Canada’s commitments such as those under the Canadian
Biodiversity Strategy, the National Accord for the Protection of
Species at Risk, etc.
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demonstrates
the Government of Canada’s desired approach of using stewardship
and incentives to achieve conservation on private lands
Background
and Rationale
Many of the healthy, functioning ecosystems that provide Canadians with
clean water, clean air and other valuable ecological services, and which
also provide habitat for Canada’s diverse plants and animals, are
found on private lands. These lands are being converted to other uses
at unprecedented rates. It is essential that private landowners who
wish to conserve their land in its natural state — for the benefit
of all Canadians — be recognized and encouraged to do so through
appropriate government incentives, legislation and policy.
The
Government of Canada has made strong commitments to protecting species
at risk, national parks, national heritage, and to supporting stewardship
on private lands. Working with landowners to protect private lands is
essential to meeting Canada’s biodiversity conservation commitments
as over 70 per cent of Canada’s species at risk are found on private
lands. In addition, the Panel on the Ecological Integrity of Canada’s
National Parks stated that conserving habitat on private lands around
parks is essential for maintaining park integrity.
The
Government of Canada has already taken some important steps to encourage
private landowners to conserve their ecologically significant lands,
most notably by reducing the capital gains inclusion rate for taxable
income on donations of certified lands and easements by 50 per cent.
In addition, “bargain sales” or “split receipting”,
whereby a donation is made with partial recompense, is also now allowed.
The effectiveness of these changes is reflected in the increase in number
of gifts donated over the years; for example, 22 in 1996, 49 in 2000
and 69 in 2003. Since the program began, over 400 donations have been
made, conserving more than 31,200 ha valued at over $100 million-a highly
cost effective way to conserve land.
However,
as important as these measures have been in encouraging donations, certain
donations of ecologically significant lands still do not qualify under
the Ecological Gifts program and donors are still subject to a tax penalty
in the form of capitals gains tax. Consequently, tax barriers still
exist to realizing the program’s full potential and to fully engaging
Canadians in conserving Canada’s natural heritage. The National
Round Table on the Environment and the Economy, in its 2003 publication
Securing Canada’s Natural Capital, also recognized the need
for further changes to enhance the Ecological Gifts program.
Recommendation
Amend the Income Tax Act to recognize all donations of ecologically
significant lands as ecological gifts, as follows:
1) Remove the remaining capital gains tax from gifts of ecologically
significant land and easements. Owners of ecologically significant lands
have often stewarded their lands for generations and are frequently
of modest financial means. The capital gain arising from the donation
of their land — even at a 25 per cent inclusion rate — can
result in the donor exceeding the current threshold income amount, above
which partial or complete claw-back of Old Age Security benefits is
triggered. Furthermore, donations of ecogifts require the same rigorous
process as donations of cultural gifts (i.e., certification of value
by government-appointed review board), yet the latter are completely
capital gains tax exempt. The final report of the Task Force on Economic
Instruments and Disincentives to Sound Environmental Practices, established
by the federal Ministers of Environment and Finance in 1994, recommended
that “the government should amend the Income Tax Act to
exempt from capital gains all donations of ecologically sensitive land
made in perpetuity to all levels of the government and charitable institutions.”
This recommendation has been echoed in numerous reports since then (see
additional information below).
2) Include donations of ecologically significant lands held by corporations
or individuals as inventory of their business under the federal Ecological
Gifts program. The disposition of land held as inventory yields a profit
rather than a capital gain (because it is not a “capital asset”),
one hundred per cent of which is deemed income for income tax purposes.
The
tax benefits of the Ecological Gifts program apply only to the capital
gain associated with the gift. The Ecogifts program is intended to offer
incentives to preserve significant ecological areas. It should, therefore,
apply to all people and companies owning qualified lands regardless
of how these lands are held. This is particularly relevant in areas
such as the Oak Ridges Moraine near Toronto, where development companies
often own ecologically significant lands, but the ecogift option is
not available to conserve land in a cost-effective manner.
By
removing these remaining barriers, the Government of Canada will enable
all owners of ecologically significant lands to participate in the Ecological
Gifts program and to contribute directly to the conservation of Canada’s
natural heritage.
Alternative
and Complementary Policies
Private land conservation requires a diversity of approaches to be successful.
Ecogifts—both outright donations of land and donations of conservation
easements—are a key tool to be used in conjunction with other mechanisms
including:
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outright
purchase of lands by conservation organizations: land purchase remains
a key tool for private land conservation, particularly of “core
areas”, but because of the expense and the wishes of landowners,
must be supported by other approaches such as ecogifts. Relying
solely on land purchase would greatly limit the amount of land conserved
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municipal
restrictions on development: Restrictions can limit development
and conserve lands in certain situations but have historically resulted
in a patchwork of by-laws of varying effectiveness that have been
subject to change with a change in municipal government. In addition,
this option would not help to engage Canadians in conservation
Other
approaches, because of the expense, precedence set or “optics”,
would be significantly less effective over time. These include ongoing
incentive payments to encourage environmentally-friendly practices on
private lands and the expropriation of lands deemed ecologically significant.
Ensuring a diverse “tool box” of complementary approaches
is essential to achieving private land conservation in Canada.
Furthermore,
Canada has a number of policies and programs in place that identify
the need for private land conservation. For example, the Species at
Risk Act (SARA), and associated Habitat Stewardship Program (HSP), stress
cooperative approaches with landowners that promote stewardship to achieve
the conservation of private lands harbouring species at risk. Similarly,
the Canada National Parks Act identifies ecological integrity as a first
priority when considering the management of national parks. Parks Canada’s
ecological integrity policy recognizes the need to integrate parks into
their surrounding landscape so that they do not function as islands.
Ecogifts are a key tool to support these policies and programs.
Contact
Thea Silver
Nature Conservancy of Canada
416-932-3202 ext.277
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