Tax Benefits and Implications
Farm owners can receive tax benefits by entering into farmland easement agreements with charitable land trusts to protect their farms from urban sprawl and other types of non-agricultural development. Such benefits are intended to make farmland preservation achievable and affordable for farmers and private landowners who choose to make this part of their legacy, and their contribution to a sustainable future for food and farming. It is a way to acknowledge and say “thank you” to those who make such a great commitment to land conservation in Ontario and throughout Canada.
The financial benefits and impact of a farmland easement agreement is affected by variables such as:
- The taxable income level of the farmland owner
- Whether the donation qualifies as an Ecological Gift
- Availability of the Lifetime Capital Gains Exemption
- Whether all or part of the property is included in the farmland protection agreement
Property Value & Tax Receipt
As a farmland easement agreement is developed between a farm owner and a land trust, an independent appraiser is engaged to determine if the conditions of the easement will potentially result in a lower resale/market value for the property. If there is a negative impact, the farm owner is compensated with a charitable tax receipt from the land trust for the difference between the property’s market value before the easement is in place, and the value after the easement has been registered on the property title. The easement value is treated like a charitable donation to the land trust despite no change in ownership of the farm or any tangible property changing hands.
Ecological Gifts
Environment Canada’s Ecological Gifts Program (Eco-Gifts) can provide significant additional tax benefits to a farm owner that protects their property with an easement agreement. While the Eco-Gift Program is geared toward the preservation of natural features like forests, wetlands and grasslands, farms can be eligible for the enhanced tax benefits offered by the program. To qualify, some provisions for the protection of natural areas on farms must be included in the farmland easement agreement and Environment Canada must agree that the property is ecologically significant, according to their criteria. Many properties protected with Ontario Farmland Trust easements have qualified as Eco-Gifts and landowners have benefited from the program.
Advantages of the Eco-Gift Program include:
- The ability to use the easement tax receipt over a ten year period
- There is no income limit for calculating the tax deduction
- Corporations can deduct the easement value directly from their taxable income
- Elimination of any taxable capital gain associated with the easement donation
- The easement and tax receipt value is certified by the federal government
The Ontario Farmland Trust can help you navigate the Eco-Gift Program to ensure your property is eligible for these additional advantages, if desired.
The Farmland Trust is advocating for more explicit provincial and federal support for farmland easements; this includes more incentives for farmers and farm businesses that are proactively protecting their land for future generations.
Farm Succession & Tax Planning
Every farm business, fiscal, and family situation is unique and different. The tax receipt and Eco-Gift benefits associated with a farmland easement donation can be applied in many creative ways to benefit your tax planning, estate planning and farm succession goals. The timing of easement registration and, therefore, the triggering of tax advantages can be an important factor to consider. It is strongly recommended that farm owners work with professional farm advisors, including a certified accountant, to understand fully the financial impact of an easement donation, how to maximize benefits of the easement process for your situation, and how to create the best possible outcome for you, your family and your farm.