Principal Issues: [TaxInterpretations translation] Is making a donation of ecologically sensitive property under the Ecological Gifts Program sufficient to render the property as capital property, with the resulting tax benefits?
Position: No
Reasons: It is a question of fact.
2008-027504 XXXXXXXXXX Catherine Ayotte, Notary, M.Fisc. September 12, 2008
Dear Sir,
Subject: Donation of ecologically sensitive property and characterisation of donated property
This is further to your letters of January 18, 2008 and March 22, 2008 to the Charities Directorate of the Canada Revenue Agency (CRA) asking whether property donated as a gift of ecologically sensitive property is capital property. Specifically, you argued that any property donated as an ecological gift is capital property and that the purpose for which the property is donated gives it this characteristic.
Please note that unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act.
It appears seems to us that the situation described in your letter could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than through advance income tax rulings and it does not issue a ruling where the principal issue is whether the transaction is in the nature of income or capital. If your situation involves a specific taxpayer and a transaction, you must forward all relevant facts and documents to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments that may be of assistance to you.
Our Comments
The definition of gifts of “ecologically sensitive land" described in paragraph 110.1(1)(d) refers to a gift of land (including a real servitude) that, in the opinion of the Minister of the Environment, is ecologically sensitive and the conservation and protection of which is, in the opinion of that Minister, important to the preservation of Canada’s environmental heritage. In our view, this definition applies to property held as inventory or capital property.
In order to determine the type of income derived from such a donation, it is essential to qualify the nature of the property transferred. The question of whether a property constitutes inventory or capital property is a question of fact that must be examined by taking into account all the facts and circumstances of a particular situation. The various criteria referred to in the jurisprudence and usually used for such a determination are described in Interpretation Bulletin IT-218R Profit, Capital Gains and Losses from the Sale of Real Estate, Including Farmland and Inherited Land and Conversion of Real Estate from Capital Property to Inventory and Vice Versa, which is available on the CRA website at the following address:
http://www.cra-arc.gc.ca/E/pub/tp/it218r/it218r-e.html .
Donations of ecologically sensitive property are no exception to this qualification procedure. The qualification of a given property must be analysed according to all relevant criteria.
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.