The Liberals have not backed off their promise to change the alternative minimum tax (AMT) relating to donations of marketable securities. Minister Friedland recently had some comments in the Hansard on the topic. I have covered this issue in two previous blog posts:
The quick, sustained and well-financed mobilization of the ‘charity sector’ to oppose this tax change was very interesting. I am going to guess that 99% of people in the charity sector did not even know of the existence of the AMT until a few months ago, and now it appears to be the number one policy priority for some.
Keep in mind that the charity sector relies heavily on government funding (68%) which is largely made possible through having an effective tax system. While fundraising is important for many charities, it only provides the charity sector with about 7% of total revenue. Failure to understand the importance of government funding to the charity sector may result in a lot of problems in the future for the charity sector. keep in mind that a 10% decline in government funding would require an increase in fundraising by 100%!
In the Hansard, there is a question a question on the AMT from Budget 2023. Minister Friedland does not directly answer the questions about studies as to the impact of the AMT but does note the following:
The government is not proposing to change the general tax treatment of donations to registered charities in Canada. The new rules are limited to circumstances in which the AMT applies. Taxpayers impacted by the AMT would still be able to claim half of the charitable donation tax credit. This is the same treatment that would be accorded to the large majority of deductions and credits under the proposed AMT reform. Seventy per cent of capital gains on donations of publicly listed securities would remain exempt from tax, which is the same treatment that capital gains eligible for the lifetime capital gains exemption receive. It is also proposed that graduated rate estates, which are often used to make large charitable gifts, be exempt from the AMT.
Minister Friedland notes that the AMT treatment of marketable securities donations is similar to other very generous tax benefits, such as the treatment that capital gains receive for the lifetime capital gains exemption when you sell small business shares or farm property.
You can read the full question and answer below:
Question No. 1786—
Mrs. Stephanie Kusie:
With regard to the impact of the changes to the alternative minimum tax on charitable donations, announced in budget 2023: what are the details of any analysis conducted by the government related to the impact the changes will have on charitable donations, including, for each, (i) who conducted the analysis, (ii) what methodology was used, (iii) what were the findings?
Hon. Chrystia Freeland (Deputy Prime Minister and Minister of Finance, Lib.):
Mr. Speaker, the alternative minimum tax, AMT, introduced in 1986, is a parallel tax calculation that allows fewer deductions, exemptions and tax credits than under the ordinary income tax rules, to help ensure high-income Canadians who excessively use tax preferences are contributing a minimum amount of tax to support the vital public services on which Canadians rely. The taxpayer owes either AMT or regular tax, whichever is largest, and can carry forward the additional AMT paid over the next seven years to reduce tax payable, to the extent that regular tax exceeds AMT in those years. The AMT does not apply in the year of death.
Budget 2023 proposed changes to the AMT so that it would more precisely target the very wealthy. Under these reforms, more than 99% of the AMT paid by individuals would be paid by those with over $300,000 in income and around 80% by those with over $1 million in income.
The government is not proposing to change the general tax treatment of donations to registered charities in Canada. The new rules are limited to circumstances in which the AMT applies. Taxpayers impacted by the AMT would still be able to claim half of the charitable donation tax credit. This is the same treatment that would be accorded to the large majority of deductions and credits under the proposed AMT reform. Seventy per cent of capital gains on donations of publicly listed securities would remain exempt from tax, which is the same treatment that capital gains eligible for the lifetime capital gains exemption receive. It is also proposed that graduated rate estates, which are often used to make large charitable gifts, be exempt from the AMT.