When a charity receives a gift of land, the charity is not
necessarily free to sell the land or use it in any manner it
desires. For example, if the gifted land has been designated by the
federal Minister of the Environment (the "Minister") as
ecologically sensitive land, there are rules in the Income Tax
Act (the "Act") that state that a tax is payable by
the charity upon the charity disposing of the land or changing the
designated use of the land, without the authorization of the
Minister. According to the Act, in such instances, the tax payable
by the charity is equal to 50% of the amount of the fair market
value of the land immediately before the disposition or the change
For purposes of the Act, "ecologically sensitive land"
means land "the conservation of which is, in the opinion of
the Minister [...], important to the preservation of Canada's
Section 207.31 of the Act, the provision of the Act that permits
this tax to be imposed on charities (and on other entities such a
municipalities and other public bodies), was added in 1995 (the
calculation of the amount of the tax was modified at a later date).
Since then, the Canada Revenue Agency ("CRA") has only
interpreted this provision in a handful of circumstances. It most
recently considered how the tax would apply in a document published
on October 15, 2014, wherein it was asked to consider the following
Whether the tax under section 207.31
applies based on the fair market value of a property at the time a
gift is made, or at the time of a change in use of the
Whether the tax under section 207.31
applies on all parcels of land that form part of the gifted land,
or whether it applies only to those parcels that have a change in
Whether the tax can be applied more
than once in respect of the same land?
The particular instance being considered by CRA involved a
municipality that had received multiple parcels of land as an
ecological gift. The municipality planned to change the use of
some, but not all, parcels of land it had been gifted, without the
authorization of the Minister.
CRA took the position that the tax would apply to the
municipality at the time of the change in use of the parcels, not
at the time when the land was gifted to the municipality. CRA also
held that if the property underwent multiple changes in use over
time, without the authorization of the Minister, it was conceivable
that the 50% tax could apply each of those times.
On the question of whether the tax would only apply to those
particular parcels affected by the change in use, or the entire
property, CRA held that it would depend on whether the initial
transfer of the parcels of land to the municipality were "a
gift of one property or a gift of multiple separate and distinct
properties." In the view of CRA, this question of fact and law
could only be determined:
[A]fter a review of
the legal agreements, the applicable provincial legislation, and
the facts of the particular situation [...]. If, after such a
review, it was determined that the recipient received a
gift of one property, then the tax under section 207.31 of
the Act would be applied based on the fair market value of all the
parcels at the time of change in use. If, however, it was
determined that there was a gift of multiple separate and
distinct properties, it seems reasonable to apply a tax on
a property-by-property basis and therefore the tax will be based on
the fair market value of those parcels that had a change in use
Based on the above, if the parcels were considered to be
"one property" then the 50% tax would apply to the entire
property, regardless of the fact that only certain parcels were
affected by the change in use. If the municipality had gifted the
affected parcels by way of separate and distinct legal agreements,
then, in the words of CRA, "it would seem reasonable" to
apply the 50% tax only to those properties.
This technical interpretation suggests that upon becoming aware
of a potential gift of ecologically sensitive land, charities may
want to take the opportunity to consider ways of structuring the
transfer if they are contemplating a change in use.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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