We recently obtained a copy of a 15-page Finance Department disclosure on AMT changes and charities that someone had requested. To put it mildly, it is heavily redacted.
After a long redaction, it notes:
“And capital gains (the main AMT driver) are also discretionary in many cases, as people can just defer or spread out realizations.”
Presumably, the redacted part before described why the changes may not have much impact on charitable giving, and the final reason is that people have control over whether they sell a property and incur a capital gain and are subject to AMT altogether.
On a page that is almost all redacted, there is only one sentence before a huge redacted part:
“Re. AMT and charities, here are some rather eye-popping stats to start out with:”
I doubt they would refer to their own estimates as “eye-popping,” and certainly not if they had been looking at them for months. This is presumably referring to some really inflated estimates that some came up with in the charitable sector that I have also commented on. One definition I read of eye-popping was “astonishingly or strikingly impressive.” Another said, “so exciting, large or impressive that it is very surprising or difficult to believe.”
Here is one of the two blocks of actual text:
Impact of the Alternative Minimum Tax on Charitable Giving
ISSUE
• Stakeholders from the charitable sector have petitioned the Department to revise the Alternative Minimum Tax (AMT) reform announced in Budget 2023 by allowing individuals to fully claim tax preferences related to charitable giving under the AMT.BACKGROUND
• Some high-income individuals owe little tax relative to their gross income because of tax preferences (i.e. exemptions, deductions, credits), including those relating to charitable giving. To address this issue, Budget 2023 introduced changes to the AMT that intends to ensure individuals pay a minimum amount of tax. As part of this reform,
o A broad range of tax credits and deductions would be disallowed 50 per cent, including the Charitable Donations Tax Credit (CDTC); and
o 30 per cent of capital gains on donations of publicly listed securities would be included in taxable income, mirroring the tax treatment of capital gains eligible for the Lifetime Capital Gains Exemption for AMT purposes.
• Under the ordinary rules and the current AMT,
o The CDTC allows individuals to claim eligible gift amounts of up to 75 per cent of their net income. Individuals can claim 15 per cent on the first $200 donated, and 29 per cent on additional donations. Those in the highest income tax bracket receive a 33-per-cent credit rate on the portion of their donation financed by income subject to the 33-per-cent income tax rate [Redacted]o Capital gains on donations of publicly listed securities are tax exempt. Individuals can also claim the CDTC in respect of these donations.
• Very high-income individuals currently receive more tax relief from the CDTC than individuals in a lower income tax bracket who gift similar amounts. For example, an individual with one million dollars in taxable income that donated $10,000 could claim $392 more than an individual with $150,000 in taxable income that donated an equivalent amount ($3,264 vs. $2,872 credit amount, respectively).
• Stakeholders argue that the reform will significantly impact Canadian charities, as the AMT will reduce the tax incentive to donate for a small number of high-income donors who make exceptionally large donations (Annex 1). [redacted]
The second major block of text that was not redacted was:
ANNEX 1 – STAKEHOLDER CONCERNS
• Stakeholders from the charitable sector strongly oppose the Alternative Minimum Tax (AMT) reform as announced in Budget 2023.
• The Department received feedback from X charity groups to express their concern following the publication of draft legislation, as well as numerous letters to the Minister from charities and high-income donors. Their concerns are echoed in the media (e.g., Globe and Mail), which criticizes the AMT for targeting charitable donations.
0 [REDACTED]
o Charities that oppose the new rules include a broad range of organizations, including ….
• Stakeholders generally expressed a common concern: the new AMT rules could significantly reduce charitable giving by limiting the incentives provided by the tax system that encourage Canadians to donate to charity.
• Some charities raised more specific concerns:
o Some high-income donors have contacted charities (and the Department) to inform them that they will reduce the amount they typically donate, or will donate less than initially promised, in response to the AMT reform.
o The reduced tax incentives under the AMT could exacerbate the negative impacts of the pandemic on the charitable sector (i.e., decreased revenue from
donations and lower support from volunteers, while demand for charitable services increase).
o The new rules may disincentive very high-income individuals from donating publicly listed shares, because 30 per cent inclusion of capital gains on the
donations of these shares will be taxable under the AMT, and half of the Charitable Donations Tax Credit (CDTC) will be disallowed.
o In particular, the new AMT rules may significantly reduce the tax relief for flow through share donation schemes. The new rules (described above) would add to the restrictions on tax preferences related to flow through shares under the current AMT rules, which already prevents individuals from claiming deductions
for flow through shares as well as the Mineral Exploration Tax Credit. A reduction in flow through share donations may negatively impact investment in Canadian mineral exploration.• Some charitable groups are advertising tools donors could use to mitigate their AMT liability while maintaining their overall giving levels.
[REDACTED]
■ This may not be beneficial if an individual donated more than 75 per cent of their net income, as they would have to claim the remaining portion of their donation after the AMT changes have taken effect should they choose or be able to do so, increasing their susceptibility to the AMT after the reform.
In the above document, the “X” and “….” were not redactions—they were just not in the document as it was a draft.
Also, keep in mind that the Finance Department, when referring to numbers such as 33%, is only referring to Federal taxes; there are provincial taxes in addition and sometimes surtaxes, etc.