One of the attractive aspects of the Thousand Islands is the close relationship between Canadians and Americans. We frequently travel and work back and forth, and often have friends and own property across the 'invisible' border. There are tax planning opportunities for residents of the United States who wish to donate land or other property to a land trust like the Conservancy
Note: The tax systems of Canada and the United States do not totally work in harmony, and the discussion below is necessarily general.
U.S. RESIDENTS'GIFTS
U.S. residents owning land in Canada may want to ensure that their property remains protected into the future and may wish to support Canadian land trusts as they do back home. Americans can donate all or a portion of their Canadian lands to a Canadian charity or similar U.S. "501 (c)(3)" organization, with various tax consequences.
An American donating Canadian land to a U.S. 501(c)(3) land trust will qualify for a U.S. income tax deduction under the U.S. Internal Revenue Code. Similarly, U.S. residents with Canadian-source income (e.g. land rentals or contracts) can donate Canadian land to a Canadian land trust charity and receive a tax credit, but it can be applied only against Canadian income tax.
A situation may arise where a U.S. resident with no Canadian-source income wants to donate Canadian land to a Canadian charity and receive appropriate tax recognition. Generally, there is no U.S. tax deduction in this situation, and no tax benefit in Canada either. One solution, however, may be to donate the property to a U.S. organization with an eventual transfer to a Canadian land trust. The Conservancy has successfully completed this type of transaction, and can help prospective donors investigate this option.
Donating a conservation easement through a U.S. organization is difficult, because only Canadian organizations qualify to hold such easements at the current time. Nonetheless, common law easements or other creative arrangements may be available to U.S. donors.
Regardless of how a donation of land or conservation easement is structured, if the property has been owned for some time, it will likely have an increase in value or "capital gain". This may result in associated taxes in either or both the U.S. and Canada. There are mechanisms in place to avoid double taxation.
U.S. residents who donate cash or other personal property to U.S. 501 (c)(3)s or Canadian charities receive similar tax treatment as described above for land. Some U.S. 501(c)(3)s extend their operations into Canada, and they could make equivalent expenditures her to recognize such an expressed intent for donations made in the U.S.
SPECIAL TAX RECOGNITION AND OTHER CONSIDERATIONS
Under Canada's Income Tax Act special tax recognition may be given to the United Nations, U.S. organizations to which the Canadian government has made a recent donation, universities, or applicant organizations such as the U.S. Nature Conservancy. This may prove to be advantageous for some donors and transactions.
Certain other considerations may be involved in a crossborder donation such as impacts on property or land transfer taxes. Non-residents of Canada may not qualify for certain lower property assessment categories in Ontario, and sales to non-residents result in a much higher (20%) transfer tax rate. Other tax consequences may also be involved. Further, some organizations can only hold -lands within a defined area, and thus may be restricted in the types of transactions with which they may help donors.
NEXT STEPS
Given the complicated nature of the subject, this information is intended simply as an introduction to cross-border donations. Decisions about your land and affairs should be made only after careful consideration and professional consultation. If you would like to find out more about donations and their tax treatment, please contact the Conservancy. We would be pleased to help you design a conservation approach that makes sense for you. We can also put you in touch with advisors familiar with such arrangements.