2014-0539731E5 Section 207.31

Principal Issues: 1. Is the tax under section 207.31 applied based on the FMV of the property at the time the gift was made or at the time of change in use? 2. Does the tax apply on all parcels of land that formed part of a gift or does it apply only to those parcels that had a change in use? 3. Can the tax be applied more than once?

Position: 1. The tax is applied based on the FMV of the property at the time of the change in use. 2. It depends, question of fact and law. 3. Potentially, yes.

Reasons: Legislation

Author: Danis, Sylvie
Section: 207.31

XXXXXXXXXX                                                                                                                     2014-053973
                                                                                                                                             Sylvie Danis

October 15, 2014

Dear XXXXXXXXXX:

Re:  Section 207.31 of the Income Tax Act

This is in response to your letter dated July 10, 2014 wherein you requested our views with respect to the application of section 207.31 of the Income Tax Act (the “Act”). More specifically, you describe a situation where a municipality received multiple parcels of land as an ecological gift. Since the municipality is considering changing the use of some but not all parcels of land without the authorization of the Minister of the Environment, you are interested in the tax implications under section 207.31 of the Act.

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Section 207.31 of the Act imposes a tax on any charity, municipality in Canada or municipal or public body performing a function of government in Canada (the recipient) where, without the approval of the Minister of the Environment or a person designated by that Minister, the recipient disposes of or changes the use of property received as an ecological gift. The tax is equal to 50% of the amount that is the fair market value of the property at the time of the disposition or change in use.

Section 207.31 of the Act does not appear to contemplate a situation involving a gift comprised of multiple parcels of land where the recipient changes the use of some but not all of the parcels of land. In our view, the tax implications under section 207.31 of the Act would depend on whether the transfer of the parcels of land would be considered a gift of one property or a gift of multiple separate and distinct properties. This is a question of fact and law, the determination of which can only be made after a review of the legal agreements, the applicable provincial legislation, and the facts of the particular situation. In this regard, you may want to consult with your legal advisor. 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 the 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.

Finally, in our view, it is possible to interpret the words of section 207.31 of the Act as they currently read such that the tax could be applied more than once on the same property where the property undergoes multiple changes in use over time without the authorization of the Minister of the Environment.

We trust our comments will be of assistance.

Jenie Leigh
Manager
Financial Institutions Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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