How to earn cottage tax rebates
Donating your cottage property to a trust or conservancy preserves its natural state, plus may save you money
Describing his cottage on Lake of Bays, Peter Goering lists the mink amongst other vital features, like the dock and the sleeping cabin. His parents bought the property in 1951 and began a journal of everyday observations on weather and wildlife, little things like “saw a family of mink today.” Those simple observations helped stitch the Goering family into the fabric of nature around them and eventually came to play their own small part in protecting that environment.
When his parents died, the cost of taking over the cottage forced Goering to sever and sell three lots from the 50-acre property. That still left him with 34 acres and 1,750′ of valuable shoreline, but soaring real estate prices also boosted his municipal tax burden and left a potentially crippling capital gain for his own children. “They’d have to sell off another piece of it to pay the taxes when I die,” he says. “If you project that down the line, it wouldn’t take long to completely urbanize the lake.
“We love the wild environment there: the trees, the plants, and the wildlife. We wanted to preserve it in its natural state.” And so the Goerings began a long campaign to keep the property in the family, and to keep it as they’d come to love it. Finally, in November 1999, they signed a conservation easement barring future development, including logging and the sale of lots.
An easement, also known as a covenant, sets permanent conditions on the use of property.
Hydro easements, for example, give the utility rights to maintain a power line on private property. The easement surrenders rights, not ownership, in exchange for an agreed use. Subsequent owners remain bound by the agreement. Similarly, a conservation easement is an agreement on allowable use, registered on title and binding on future owners. It might be a covenant to maintain a heritage building, for example, or to preserve a woodland in its natural state.
Long-term preservation requires a trusted guardian, some legal body to ensure that the property will be managed according to the initial agreement, even after the original signatories are gone. Donors can assign easements to the care of a land trust, a nature conservancy, a foundation, or a public institution. Even outright donations of title require a suitable recipient to take ownership and use the property for the intended purpose. Many parks and historic sites were once private property, donated to a public body so that they might be preserved for that use.
Without death and taxes, such arrangements would be unnecessary.
Cottagers who prefer peace and quiet to over-development would keep precious waterfront in its natural state because that’s the way they like it. Mortals, however, have no guarantee that their descendants will carry the same torch, and taxes may make it unaffordable.
Even in the short term, property taxes can punish cottagers who would prefer to keep development at bay. Fortunately, even in the short term, some cottagers may have land use options that can keep the tax assessor at bay. Farmland and managed forests, for example, may be entitled to significant tax rebates. However, in the long term, conservation options come back to the donation or sale of easements or title to land trusts or conservancies.
It is an increasingly popular strategy. Stew Hilts, director of the Centre for Land and Water Stewardship at the University of Guelph, says that as the Ontario government began to reduce its support for conservation in the 1980s, he and a few others looked at land trusts as a way to fill the gap. “There were only one or two in operation then,” he recalls. “We set up the Land Trust Support Program with the Federation of Ontario Naturalists, and this became the Ontario Nature Trust Alliance.” An umbrella organization that serves the interests of land trusts, ONTA has grown to 31 members who have helped landowners protect almost 50,000 hectares from development. Of that total, member trusts have bought or been given 11,775 hectares outright.
Donating land for the purpose of protecting it extends well beyond ONTA. Recent federal income tax amendments extended benefits for ecological gifts to municipalities, registered charities, and Crown agencies. There are 58 Ontario charities qualified to accept ecological gifts and sign the tax receipt. Add national organizations like the Nature Conservancy of Canada, the Trans-Canada Trail Foundation, and Ducks Unlimited Canada and the options now open to conservation-minded cottagers appear staggering.
The Goerings took four years to examine all their options, with support from the Muskoka Heritage Foundation. It was time well spent, and produced some nice surprises along the way, including an unexpected municipal tax break from signing a five-year management plan through the province’s Managed Forest Tax Incentive Program. “One of the first things we did was hire an ecologist/biologist to study the property, to see what we had there: flora, fauna, stream, everything,” says Peter Goering. “It made a wonderful story for us, and became the basis of an application under the Managed Forest Program. That reduced our municipal taxes, which had been going out of sight. Now we pay as if we had a small cottage on a small lot.
“More importantly, the process pushed us into learning more about our property, which made the cottage a richer experience for all of us,” he continues. “We participate in the annual bird counts now. And our grandson went back to my parents’ original observations—including that family of mink—to graph the changes in wildlife over the years.” The Goerings’ five-year forestry agreement didn’t solve their long-term concerns about inheritance and capital gains, but it was a solid first step and does represent a range of conservation options short of permanent easement or outright donation. Provincially Significant Wetlands and Areas of Natural and Scientific Interest also qualify for property tax exemptions under Ontario law. And where regulatory controls limit development, in a flood plain or designated green space, for example, there may also be a case to limit assessment and property taxes. Municipalities are understandably reluctant to give up future development and tax revenue without good reason, though, so don’t expect protection under municipal zoning without thorough research. Even then, governments and Official Plans can change.
This article was originally published on February 16, 2007