Cross-border conservation has always been difficult—especially when landowners are not citizens of the country where they own property. U.S. citizens who own Canadian property have a way to keep their U.S. tax breaks if the land is donated as conservation easements.
"In a place like Georgian Bay on Lake Huron, where up to 80 percent of the land is owned by Americans, or smaller lakes in Quebec and Ontario, where pretty much all of the waterfront is owned by Americans, you cannot do strategic land and water conservation without working with Americans," says Sandra Tassel, treasurer of the American Friends of Canadian Land Trusts in Bellingham, Wash. Many of the Canadian properties owned by U.S. citizens have been owned by multiple family generations, some dating back to the industrialists of the mid to late 1800s, she says.
For example, owners of property on one island in Ontario originally included the founder of Gulf Oil, the presidents of two steel companies, the president of Pittsburgh Locomotive Works, the publisher of the Philadelphia Press, the founder of Mellon Bank and the president of the Bank of Pittsburgh. On Ahmic Lake in Ontario and Lake Massawippi in Quebec, Tassel discovered that many landowners trace their lineage to Baltimore.
Baltimore boomed after the U.S. Civil War, she noted, adding that there was lots of manufacturing and shipping there at the time, as well as roughly 40 canneries packaging oysters, shellfish and other seafood. "It smelled, and so if you had money, you went someplace else for the summer. And if you were from Baltimore, you did not want to take your black servants to New Hampshire or Rhode Island. You didn't go to these places because you identified as a southerner," she says.
Now, as younger members of these families fail to make use of the Canadian properties—whether they be a lake house in Quebec or shore home in Maine—many families want to preserve the property they've cherished so others can enjoy it, she says. But until recently, they've been stymied.
In the U.S., private landowners typically conserve land by either donating or selling a conservation easement to a "qualified conservation owner"—usually a land trust. (See Legacies by the Acre, Private Wealth, July 2013.) This reduces the value of the land by 30 percent to 90 percent and reduces estate taxes by a like amount so owners don't have to sell the land to pay taxes.
If the landowner donates the easement, he or she also receives a charitable income-tax deduction for an amount equal to the value of the easement. That tax credit has been enhanced this year only; non-farm donors may deduct up to 50 percent of adjusted gross income for a period of up to 15 years. Farmers and ranchers can deduct up to 100 percent of adjusted gross income for the same time period.
In most of Canada, conservation easements have generally worked the same way. But there is a hitch: a capital gains tax of roughly 25 percent on the transfer of all land—even within a family. American landowners could avoid the Canadian capital gains tax by donating the easement to a Canadian land trust. But since they were making a gift to a Canadian charity, Tassel says, they would receive no income tax deduction and possibly no estate tax benefit in the U.S.
American landowners who wanted to conserve property in Canada thus had a dilemma. They could donate the easement to a U.S. land trust and qualify for U.S. tax breaks, but they'd get hit with Canada's capital gains tax. Or they could donate the easement to a Canadian land trust, which would allow them to avoid the Canadian capital gains tax but lose the U.S. income tax deduction. Since they were making a gift to a Canadian charity, they could still receive US estate tax benefits.
"Land trusts in Canada could not get people to make donations even though they were charitably inclined and conservation oriented," Tassel says. "Giving up an income tax deduction on a $1 million piece of property is a hard nut to swallow."
In 2006, American Friends was formed to deal with this dilemma. It took five years, but led by the Nova Scotia Land Trust and with help from other land trusts in Canada, it obtained special legislative status in Canada that precluded or minimized the imposition of capital gains taxes on land donations it receives. This means that U.S. donors can avoid the Canadian capital gains tax when they make the gift of a conservation easement on Canadian property to American Friends. Since American Friends is based in the U.S., they would also retain the right to all U.S. tax breaks.
Since October 2011, when this went into effect, American Friends has consummated 11 deals in four provinces—Nova Scotia, Ontario, Manitoba and British Columbia. It's currently working on more in the Gulf Islands, the Great Lakes in Ontario, New Brunswick and Quebec.
According to Stefan Nagel, Of Counsel at the Law Office of Stephen J. Small, The Nature Conservancy accepts gifts of cross-border conservation easements in Canada, but it is only interested in wildlife habitat where there is a threatened or endangered species. American Friends, on the other hand, will also deal with ecologically significant land that may also include recreational land, open space, timberland or farmland.
