Conservation Easements for Agricultural Land Use
Table of Contents
Conservation easements provide a way in which landowners may retain agricultural heritage and biodiversity on the future use of their land, while benefiting from specific tax credits. This Factsheet addresses the legal and tax issues surrounding the set up and maintenance of a conservation easement for agricultural land use.
It is important to note that a conservation easement is a negotiated land restriction, not a regulated land restriction. Typically, the landowner meets with the conservation body to divide the property into different zones, to reflect the land's future use. Types of zones may include:
Agriculture conservation easements do not interfere with normal farming practices. The conservation body and landowner develop a working relationship to ensure easements do not place undue restrictions on agricultural activities.
Agreement on premises monitoring
section details the allowances for the conservation body to inspect the property
to ensure compliance with the agreement.
Again, it is important to note that the monitoring framework is negotiated between the landowner and the conservation body. A baseline report is developed during establishment of the easement to provide a basis for future monitoring of the property. Typically, monitoring by the conservation body occurs once a year.
The agreement also outlines provisions for the assignment of the conservation easement to another conservation body in the event that the original conservation body is unable to fulfill its role.
Conservation easement: Landowners can conserve the agricultural and natural values of their property and still retain ownership by donating a conservation easement to a registered conservation body that will restrict designated land use activities. The landowner continues to own the land and may sell the land to another party at any time, however, the owner's land use and any subsequent owner's use of the land will be restricted by the terms set out in the conservation easement. This may have an effect the future.
Conservation easement with remainder interest: Landowners may donate the property and conservation easement to an eligible organization and retain the right to use and/or live on the land for their lifetime or the lifetime of someone else they name, such as children.
Conservation easement with full title:
It is also possible for landowners to donate the ownership of the land and conservation
easement to a conservation body. In some cases, donors of properties wish to protect
the land from development.
The landowner is presumed to have intended to enrich the conservation body in circumstances where the value of the advantage given to the landowner does not exceed 80% of the fair market value of the transferred property. Where the value of the advantage to the landowner exceeds 80% of the fair market value of the transferred property, a gift would be recognized only in exceptional circumstances where the landowner satisfies the federal Minister of Revenue that the transfer was made with intent to make a gift.
All types of easement agreements have tax implications. Landowners are considered "donors," giving "interest" in the property over to the conservation body through an easement. The conservation body then holds the easement value, usually issuing a tax receipt to landowners for this donation. Conservation easement donations fall under two basic categories: the Ecological Gifts Program and other conservation easement programs.
The Ecological Gifts Program
The Ecological Gifts Program is administered by Environment Canada in cooperation with dozens of partners, including other federal departments, provincial and municipal governments, and environmental non-government organizations.
Landowners who have easements authorized through this program are eligible to receive tax incentives, including:
To receive the full tax benefits of a gift under the Ontario Ecological Gifts Program, the land or easement donation must be certified by the federal Minister of the Environment or a delegated conservation body as ecologically sensitive according to specific national and provincial criteria, before it can be included under the Ecological Gifts Program.
Ecologically sensitive lands are areas or sites that currently or could, at some point in the future, contribute significantly to the conservation of Canada's biodiversity and environmental heritage.
The value of the Ecological Gift is determined by the Minister of the Environment and is derived from a certified land appraiser's assessment before the land or easement donation is made. The tax credit is defined as the difference in land values before and after the easement.
Once the land has been deemed ecologically sensitive and the appraisal has been certified by Environment Canada, the landowner is issued a certificate that allows the landowner to access specific tax benefits:
It is important to note that farmland can be included in an approved Ecological Gift because the assessment applies to the whole property, not just the natural habitat. A farm that includes a significant wetland or woodlot can be approved due to the ecological significance of this habitat, but the approval extends to the entire property.
It is also important to note that the landowner may choose to discontinue participating in the program at any stage prior to the final certification being issued.
Responsibilities of Landowners Under the Ecological Gifts Program
To preserve and protect the land's biodiversity and environmental heritage, landowners are required to safeguard ecologically sensitive features of their property in accordance with the land use as set out in the easement agreement.
Landowners are required to obtain the permission of Environment Canada before any transfer of ownership or change in land use may take place.
A landowner interested in donating land or an easement through the Ecological Gifts Program may contact Environment Canada staff from the Ecological Gifts Program or a qualified recipient organization, such as a registered land trust or a municipality.
Other Conservation Easement Programs
Landowners wishing to register an agricultural conservation easement on their land who are ineligible or do not wish to participate in the Ecological Gifts Program may participate in a program offered by a conservation body, such as the Ontario Farmland Trust.
The landowner may contact the conservation body directly to negotiate an agreement suitable to both parties. It is important to verify that the land trust or environmental organization is registered as a charity before entering into any easement agreement. It is also recommended that landowners obtain legal and tax advice prior to entering into any agreement.
While these programs are less onerous than the Ecological Gifts Program, there are some disadvantages. Landowners entering into agreements outside the Ecological Gifts Program may be subject to capital gains tax upon the sale or donation of land or an easement.
Table 1. Considering options for protecting land
Note: The certified fair market value of an outright gift is generally the current appraised fair market value of the gift. The value of an Ecological Gift must be certified by the Minister of the Environment.
Note: For sales and non-Ecological Gift donations,
50% of the capital gain is taxable.
Table 1 illustrates some of the tax implications of some of the different easement options. The information presented is for illustration purposes only. For information about the federal, provincial or property tax implications of making an ecological gift, consult the relevant federal, provincial income tax legislation or your professional advisor.
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