For our purposes here, when we say property we’re talking about land and buildings. Of course you can donate property, however, that may not get you out of the capital gain you may acquire due to the transfer of that property. Once property is transferred it triggers a capital gain. If it’s been your principal residence, then you can designate it as such for tax purposes. If it’s other property then it needs to be ecologically sensitive land (including a covenant, an easement, or in the case of land in Quebec, a real servitude), or it has a heritage value. Any other land would trigger a capital gain on the donation.
Ecologically Sensitive Land
For ecologically sensitive land you would have a zero rate of inclusion, which means you would have no capital gain per se. However, you must still report the capital gain on your income taxes. You can claim a tax credit based on the eligible amount of a gift of ecologically sensitive land you made to Canada, or one of its provinces, territories, or municipalities, or a registered charity approved by the Minister of the Environment. Under proposed changes, gifts of ecologically sensitive land made to a municipal or public body performing a function of government in Canada, will also qualify for a tax credit.
The Minister of the Environment, or a person designated by that minister, has to certify that the land is important to the preservation of Canada’s environmental heritage. The Minister will also determine the fair market value (FMV) of the gift. For a gift of a covenant or an easement, or a real servitude (in Quebec), the FMV of the gift will be the greater of:
- The FMV of the gift otherwise determined; and
- The amount of the reduction of the land’s FMV that resulted from the gift.
Your claim for a gift of ecologically sensitive land is not limited to a percentage of your net income.
You will have to include a capital gain, or loss, on your income taxes. You would calculate this loss based on the adjusted cost base and the fair market value of the property at the time of the donation. You must have the property appraised by someone familiar with the property you are donating, which in the case of land and buildings would probably be a realtor. Many times the charity will hire the appraiser. If the fair market value of the land is greater than the adjusted cost base then you have a capital gain, and if it’s less then you have a capital loss.
If you donate cash or other property to a registered charity or other qualified donee in the year, your total donations limit will generally be 75% of your net income for the year. However, you can increase your total donations limit if you donate capital property in the year. If you received an advantage in respect of the donation of the property, include, in your calculations, only the portion of taxable capital gains and recapture of depreciation that related to the gift portion of your donation.
Your receipt from the charity must include the usual suspects plus:
- Eligible amount of the gift for tax purposes (fair market value of the property)
- Description of property received by charity
- Appraised by
- Address of appraiser
Donating a property can be a great way to help the charity of your choice, however, there can be tax consequences for doing so. It’s always best to talk to a tax professional before you do any property donating.