What are the tax implications of donating land

What are the tax implications of donating land?

By Jason Heath, CFP on August 20, 2019
Estimated reading time: 3 minutes

Donating, rather than selling, could be a way to put money back in your pocket in the form of a tax refund, while benefitting a charity and the environment.

Photo by freepik from freepik.com

Q. I have some land in Nova Scotia that I don’t plan to use. It’s a small, empty lot valued at about $15,000. I was wondering if I could donate that land to a wildlife charity and receive a tax break for it rather than selling it off? What would the tax break be in my specific case? I’ve never donated to charity before and earn about $55,000 annually. –Raymond A. I would start by speaking to the charity in question, Raymond, as there may be different options available for the land beyond just a direct donation. For instance, you may be able to sign a conservation agreement where you are paid by an organization to limit land uses and protect species and features. This way, you retain ownership and can sell the land in the future or pass it to your beneficiaries on your death. There are many other potential landowner options a charity may be able to help you explore as well. However, if you choose to donate the land outright to the charity, the donation will be calculated based upon the fair market value of the land at the time of donation. Despite this being your first charitable donation, Raymond, unfortunately there is no special tax benefit for you to take advantage of. You may be recalling the temporary First-Time Donor’s Super Tax Credit, which was introduced in 2013, offering an extra tax credit of up to 25% of the value of the donation; however, that credit ended in 2017.

Compare the Best Savings Accounts in Canada* >

Keep in mind there are capital gains tax implications any time you sell, gift or donate land. Land cannot qualify as a tax-free principal residence unless there is a home on it, so any disposition of land will generally lead to a capital gain or capital loss. In some cases, it could be taxable as business income or inventory, but this wouldn’t generally be a concern for someone who has owned land for some time in a personal-use capacity. If the fair market value at the time of your donation exceeds the adjusted cost base (which is made up of the purchase price + acquisition costs + improvements) when you acquired the land, you will have a capital gain to report on your tax return. When you donate certain types of property to a charity, including certified ecologically sensitive land, you may be entitled to an inclusion rate of zero (meaning none of the capital gain is taxable) on any capital gain realized on such gifts. Ecologically sensitive land is determined based upon various criteria that can differ by province. The charity you have in mind can help you determine the qualifications in conjunction with a regional Ecological Gifts Program coordinator or a delegated certification authority.

Compare the Best Savings Accounts in Canada* >

You are normally limited to claiming charitable donations up to 75% of your net income for a given year, but gifts of ecologically sensitive land are not subject to any limit. That said, given your $55,000 annual income, you may want to consider claiming the gift over more than one year, depending on your other tax deductions and credits for the year, to make the most of it. You can carry forward the credits associated with a gift of ecologically sensitive land for up to 10 years. Donating eligible land to a charity can help you avoid capital gains tax, as well as qualify for a charitable donation tax credit. If it is land that you’re not using anyway, a donation could be a way to put money back in your pocket in the form of a tax refund, while benefitting a charity and the environment. Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

MORE FROM ASK A PLANNER:

What does the * mean?

Affiliate (monetized) links can sometimes result in a payment to MoneySense (owned by Ratehub Inc.), which helps our website stay free to our users. If a link has an asterisk (*) or is labelled as “Featured,” it is an affiliate link. If a link is labelled as “Sponsored,” it is a paid placement, which may or may not have an affiliate link. Our editorial content will never be influenced by these links. We are committed to looking at all available products in the market. Where a product ranks in our article, and whether or not it’s included in the first place, is never driven by compensation. For more details, read our MoneySense Monetization policy.

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

Linkedin Twitter Facebook Website

Comments Cancel reply

Canadian couple outside of home, wondering if they should transfer it to their corporation.

Ask MoneySense

Is transferring your principal residence to your corporation a good idea?

Would swapping a house for cash from a corporation save on taxes? And is this tactic worth it in...

Is transferring your principal residence to your corporation a good idea?

Ask a Planner

RBC’s discount broker launches international trading—what to know before you invest

It’s a first among bank-owned discount brokers in Canada. With more banks likely to follow RBC's lead, what should...

RBC’s discount broker launches international trading—what to know before you invest

Ask a Planner

What are the tax implications if you resell Taylor Swift tickets?

Allison resold her Eras Tour tickets instead of going to the concert. The resale website asked for her SIN,...

What are the tax implications if you resell Taylor Swift tickets?

Ask a Planner

Should you take extra RRIF withdrawals to increase your estate?

Contrary to the conventional advice, taking more than the minimum RRIF withdrawal can at times save tax on your...

Should you take extra RRIF withdrawals to increase your estate?

Ask MoneySense

How much income can I earn while getting OAS?

If you continue working in retirement, it could cause a clawback on your OAS. Here’s how to figure out...

How much income can I earn while getting OAS?

Ask a Planner

Estate planning for singles—is a trust company the answer?

Canadians with no children or siblings must consider estate planning alternatives. Here’s why trust companies can be a good...

Estate planning for singles—is a trust company the answer?

Ask a Planner

What to know as Canada’s capital gains tax changes remain in legal limbo

The federal government’s capital gains inclusion rate increase has yet to become law. There’s a slight chance it may...

What to know as Canada’s capital gains tax changes remain in legal limbo

Ask a Planner

How to report foreign income in Canada

Canadians have reporting requirements for foreign assets, income and tax paid. Here’s how to claim each of these on...

How to report foreign income in Canada

Ask a Planner

Should you invest an inheritance in an RRSP or a TFSA?

A Certified Financial Planner provides perspective on the TFSA vs. RRSP question for a couple in their late 50s...

Should you invest an inheritance in an RRSP or a TFSA?

Ask a Planner

How to plan for taxes in retirement in Canada

In retirement, some income is not subject to withholding tax, and you may potentially owe tax after filing each...

How to plan for taxes in retirement in Canada

What are the tax implications of donating land?

MORE FROM ASK A PLANNER:

What does the * mean?

About Jason Heath, CFP

Comments Cancel reply

Related Articles

Is transferring your principal residence to your corporation a good idea?

RBC’s discount broker launches international trading—what to know before you invest

What are the tax implications if you resell Taylor Swift tickets?

Should you take extra RRIF withdrawals to increase your estate?

How much income can I earn while getting OAS?

Estate planning for singles—is a trust company the answer?

What to know as Canada’s capital gains tax changes remain in legal limbo

How to report foreign income in Canada

Should you invest an inheritance in an RRSP or a TFSA?

How to plan for taxes in retirement in Canada