The alternative minimum tax, known as AMT, is a provision added to the Canadian tax system in 1986 with the policy objective of ensuring high income earners pay their fair share of income tax. AMT is designed to ensure that regardless of any kind of preferential tax credits or deductions you are claiming in a given year, you will owe a minimum level of income tax. Whether or not the AMT has achieved its goal of fairness has been a topic of debate since its inception, and it seems that the current Liberal government has taken a side in this debate.

 

For many decades Canada has had a tax system designed to encourage philanthropic activities, by providing incentives to taxpayers to make donations to registered charities and non-profit organizations. This has changed little over the years as it has been an effective policy tool to encourage giving back to the community. However, with the 2023 budget announcement came some proposed amendments to the current AMT regime that will have a significant impact on charitable giving. Beginning in 2024:

 

• Only 50% of the charitable donation tax credit will be allowed when calculating the AMT.

 

• 100% of capital gains will be included in adjusted taxable income for AMT purposes.

 

• 30% of capital gains on publicly listed securities donated in-kind will be included in adjusted taxable income.

 

In practical terms, this means that individuals who are making a donation where a significant capital gain is coupled with the donation, such as through the sale of a business, could have the amount of AMT payable increase. This also means that if you planned to make a significant donation of publicly listed securities, doing so in 2024 may give rise to AMT being applicable, where a similar set of circumstances in the 2023 tax year would not.

 

Therefore, If you had any plans to make a charitable donation, now may be a better time to act than later.

 

For more details, you can find coverage on the AMT changes, as well as illustrations of the impact of those changes, from CIBC Private Wealth’s Tax and Estate Planning Team here and here.