Principal Issues: Does the application of section 207.31 depend on the claim of a tax benefit by a donor of a land donated as an ecological gift?
Position: No.
Reasons: Based on the legislation and the fact that the tax pursuant to section 207.31 is intended among other things to ensure the long-term protection of ecologically sensitive property donated as an ecological gift.
XXXXXXXXXX 2016-062524
Lucie Allaire, LL.B, CPA, CGA, D. Fisc.
April 4, 2016
Dear Madam,
Subject: Disposition of ecological property
This letter is in response to your email of December 15, 2015 addressed to XXXXXXXXXX, Environment and Climate Change Canada, in which you asked them to forward your request. In this regard, you wish to confirm whether the fact that a corporation does not claim a tax benefit from a gift of ecologically sensitive land prevents the application of section 207.31.
Unless otherwise stated, all statutory references are references to the provisions of the Income Tax Act (the "Act").
You refer to a situation where the donor has obtained in XXXXXXXXXX, under the Ecological Gifts Program, a Certificate for Gift of Ecologically Sensitive Land or Servitudes (the "Certificate") following a gift to a municipality in Canada of ecologically sensitive land located in XXXXXXXXXX. We understand that the donor also received an official gift receipt from the municipality but did not claim a deduction in its tax return for the year of the gift or for the subsequent five years.
As the municipality now wishes to dispose of the property, it has requested the Minister of the Environment (the "Minister") for authorization to dispose of the property for the purposes of section 207.31.
The Minister refused the request because the ultimate recipient of the property would be the donor who is a real estate developer. Moreover, this disposition does not provide for the conservation of the natural heritage of the property, but rather contemplates the property’s development as a residential project.
Finally, you are of the view that, on this prospective disposition, the tax under section 207.31 would not apply because this section is intended to offset the tax benefit to a donor of ecologically sensitive land.
Our Comments
This technical interpretation provides general comments on the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Section 207.31 provides inter alia that a municipality in Canada is required to pay a tax if it has disposed, without authorization of the Minister of the Environment, of a property described in paragraph 110.1(1)(d) or in the definition of "total ecological gifts" in subsection 118.1(1), which was given to it. This tax equals 50% of the fair market value of the property that would be determined by the application, among others, of sections 110.1 and 118.1, but without taking subsections 110.1(3) and 118.1(6) into account, if the property has been donated immediately before the disposition.
The tax under section 207.31 is intended, among other things, to ensure the long term protection of ecologically sensitive land that has been donated under the Ecological Gifts Program. Consequently, we are of the view that the application of section 207.31 does not depend on whether the donor did not claim a tax benefit from the gift of the ecologically sensitive land.
In the situation described, given that the disposition of the ecologically sensitive land has not been authorized by the Minister and the property appears to be described in paragraph 110.1(1)(d), the municipality would be subject to tax under section 207.31.
We trust that our comments will be of assistance.
Louise J. Roy, CPA, CGA
Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch