Principal Issues: Whether the words "real property situated in Canada" referred to in paragraph 118.1(6)(b) and subparagraph 110.1(3)(a)(ii) of the Income Tax Act (the "Act") would apply to a gift by a non-resident of "a servitude for the use and benefit of a dominant land, a covenant or an easement" as referred to in the definition of "total ecological gifts" in subsection 118.1(1) and "ecological gifts" in paragraph 110.1(1)(d) of the Act.
Position: Yes, provided that the granting of the easement, covenant or servitude referred to in the definition of "total ecological gifts" in subsection 118.1(1) and "ecological gifts" in 110.1(1)(d) of the Act constitutes a gift.
Reasons: The context of paragraph 118.1(6)(b) and subparagraph 110.1(3)(a)(ii) of the Act suggest that the phrase "real property situated in Canada" would include a "servitude for the use and benefit of a dominant land, a covenant or an easement" as referred to in the definition of "total ecological gifts" in subsection 118.1(1) and "ecological gifts" in paragraph 110.1(1)(d) of the Act.
XXXXXXXXXX 2004-010621
October 18, 2005
Dear XXXXXXXXXX:
Re: Request for Technical Interpretation
We are writing in response to your letter dated December 1, 2004, where you requested our views on whether the words "real property situated in Canada" referred to in paragraph 118.1(6)(b) and subparagraph 110.1(3)(a)(ii) of the Income Tax Act (the "Act") would apply to a donation by a non-resident of "a servitude for the use and benefit of a dominant land, a covenant or an easement" as referred to in the definition of "total ecological gifts" in subsection 118.1(1) and "ecological gifts" in paragraph 110.1(1)(d) ("Conservation Interest").
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
General Comments
We would agree that, the phrase "real property situated in Canada" referred to in paragraph 118.1(6)(b) and subparagraph 110.1(3)(a)(ii) would apply to a gift of a Conservation Interest by a non-resident to the Nature Conservancy, a charity established in the United States prescribed in section 3504 of the Income Tax Regulations.
Paragraph 118.1(6)(b) and subparagraph 110.1(3)(a)(ii) allow a non-resident individual or corporation respectively gifting "real property situated in Canada" to the Nature Conservancy prescribed in section 3504, to designate an amount between the adjusted cost base (ACB) and the fair market value of the donated real property as the proceeds of disposition for the purposes of calculating the gain on disposition. Where the "real property" donated in accordance with paragraph 118.1(6)(b) or subparagraph 110.1(3)(a)(ii) is a Conservation Interest the ACB of the donated Conservation Interest would be calculated in accordance with subsection 43(1) of the Act.
It should be noted that in order for paragraph 118.1(6)(b) or subparagraph 110.1(3)(a)(ii) to apply the transfer of the Conservation Interest must constitute a gift. Generally we do not recognize temporary transfers of property as gifts and a frequent consideration in assessing whether a gift has occurred is whether the subject of the gift could revert to the grantor. In our view, a gift of a Conservation Interest donated in accordance with paragraph 118.1(6)(b) or subparagraph 110.1(3)(a)(ii) occurs in circumstances where the Conservation Interest is permanently granted to the Nature Conservancy prescribed in section 3504. However, we agree that the potential for the termination of a Conservation Interest in circumstances that are not within the grantor's control would not necessarily prevent a Conservation Interest that would otherwise qualify from being viewed as a gift.
While we hope that our comments will be of assistance to you, the comments referred to above are not binding on the Canada Revenue Agency.
Yours truly,
F. Lee Workman
Section Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Legislation Branch