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Gifts of Land & Covenants

  • Gifts of Real Estate

    A gift of real estate or certain rights to the land (covenants, easements, servitudes) that are not eligible for ecological gift status or that do not have ecological values may also be valuable to an organization.

    A recipient organization will want to work with a donor to determine how this valuable gift can be used to meet both the donor's and organization's goals and needs. For example, one such goal might be to enable the donor to continue to live in their house. Please see Gifts of Residual Interest to see how this can be arranged.

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    Jonathan Grant

    For example, one such goal might be to enable the donor to continue to live in their house. Please see Gifts of Residual Interest to see how this can be arranged.

    Canada Revenue Agency also allows landowners to sell their land for less than its market value to governments or charities and receive a tax receipt for the difference between the sale price and the market value. In Canada this is known as 'split receipting'. 

    If the land has ecological values, a donation known as an Ecological Gift can result in greater tax benefits. Please refer to this type of gift in this section and/or refer to the Ecological Gifts section in the Professional Advisors area.

    Benefits to you?

    • As a donor, you have the satisfaction of either seeing the gift at work now or in the near future for organization's purposes, or sold to become a very significant legacy gift. 
    • If the organization is a registered charity you receive an immediate donation receipt for the fair market value of the donated real estate, as determined by a qualified appraisal.
    • 50% of any capital gain on the property is taxable, but the tax credit arising from the gift will exceed the tax on the capital gain, resulting in tax savings for the donor.
    • There is no taxable capital gain if the donor donates his or her principal residence. Capital gains up to $750,000 are exempt from tax when qualified farm property is donated.
    • You are relieved of obligations commonly associated with real estate. After making an outright gift of real estate, you no longer have to pay property taxes, maintenance or property management fees, insurance or other ongoing costs. 

    Who can give real estate?

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     Gary Tipper

    Donors may be owners of a principal residence, recreational or investment property who do not need the property or the proceeds from its sale. Some donors may wish to simplify their estate or advance their bequest to an organization by donating real estate now.

    Donors with considerable real estate holdings but modest liquid asset holdings will also find this form of giving attractive. The donor is able to fund a significant gift through real estate rather than having to reduce current cash or liquid assets.

    Another option is for the donor to give a residual interest in the property now while retaining a life interest. In this way, the donor retains possession until the end of the specified term or death. (See Gifts of Residual Interest.)

    Donors wishing to reduce real estate holdings while increasing their income may wish to consider using the property to fund a charitable remainder trust or charitable gift annuity.

    Individuals with no family or close beneficiaries may find a bequest of real estate to an organization (for example, a house, farm or other special property) to be an attractive option. (See Charitable Bequests.)

    How do I give a gift of real estate?

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    Janice Link

    The property is appraised and the fair market value is determined. The gift is made by signing and delivering legal documents conveying the property to the organization. These are then filed in the appropriate Land Title office. If a registered charity is the recipient, the organization issues a donation receipt to the donor for the fair market value of the donated property. If appreciated property is donated, the amount of the capital gains must also be calculated.

    Important considerations

    Land held by developers may be characterized as business inventory. Any increase in land value will be viewed by Canada Revenue Agency as business income, not capital gains, for tax purposes and will have to be fully included in income should the land be donated. It is important to seek proper tax and legal advice as part of the gift-planning process.

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    Debbie Kelsall

    These gifts can be significant and very beneficial to the organization, and it is wise to inquire beforehand about gift acceptance policies regarding real estate. The organization usually will carefully screen offers of land and accept them only after diligently investigating possible problems and liabilities that may come with the property. Examples include: contamination, mortgages and other encumbrances, maintenance and repair costs regarding buildings, fencing, landscaping and the like, zoning restrictions and lack of marketability. An appraisal will be required, and depending on the size and value of the property, more than one appraisal may be required.

    Planned gifts can provide beneficial results for a donor but, in order to ensure that all relevant issues have been considered and addressed and that all Income Tax Act, Canada provisions and regulations are met, prospective donors should seek qualified legal and accounting advice.

    Give Green Canada acknowledges and thanks Lorna Somers and Frank Minton for pre-approving the use of their book Planned Giving for Canadians as the basis for the information provided about different types of gifts.

     

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