AHP Canada Council Response to Changes to the Federal Alternative Minimum Tax (AMT)

The Canada Council of the Association for Healthcare Philanthropy (AHP) shares in the widespread concern within the charitable sector over the effects of changes to the federal Alternative Minimum Tax. In particular, we are concerned about the detrimental effect this change will have on philanthropic support for healthcare from major donors across the country.

Background

The AMT was introduced in Canada in 1986 to ensure that high-income individuals and trusts pay a minimum rate of tax after claiming tax credits and deductions. Each year, your tax liability is calculated using both the regular method and an alternative method which excludes credits and deductions. In most cases, the regular method leads to higher tax. However, taxpayers are required to pay the higher tax amount when the alternative method surpasses the regular one.

Proposed Changes

Budget 2023 proposed a revision to the AMT calculation for the inclusion rate on capital gains from donations of publicly traded securities, such as stocks or mutual funds. Currently, capital gains on donated securities are not factored into the AMT calculation, and do not increase the taxpayer's AMT liability. The proposed change, commencing January 1, 2024, is to adjust the inclusion rate of the capital gains to 30%, potentially increasing the taxpayer's AMT liability.

In addition, once AMT kicks in, there is a 50% reduction in the non-refundable tax credit so even ordinary cash donations can be caught.

AHP Canada Council Position

The charitable sector in Canada plays an essential role supporting the most vulnerable, and driving positive change.  Encouraging charitable giving through tax incentives, including the capital gains tax exclusion on donated securities, has been pivotal in driving philanthropic contributions.

The continuing trend across the country over a number years now is fewer and fewer donors giving larger and larger top gifts. This means that hospital foundations and other health charities across Canada rely more and more on major gift donors to meet fundraising goals and provide our healthcare professionals with vital medical equipment, education, and research funding. 

AHP Canada Council shares the now widespread concern that these changes will discourage major lifetime donations from individuals, and will, as a result, hurt charities and the communities they serve.

What to Say to Donors

Given the intricate and nuanced nature of the AMT rules, high-income donors should be encouraged to seek guidance from a qualified tax professional. AMT only kicks in for a small percentage of taxpayers, and every situation will be different, so every donor should seek guidance from a professional advisor.

At the same time, we have an opportunity to encourage donations that can be made in 2023, before the new rules take effect. This could be as simple as moving ahead now with a gift that was being considered for 2024, or completing a pledge early with a gift of appreciated stock. Or, it could involve creating taxable income with a RRIF or other withdrawal to enable a larger donation of public securities. This may also be the year some donors choose to create an endowment or donor advised fund to distribute support over the next few years.

Respectfully submitted on behalf of the Canada Council of the Association for Healthcare Philanthropy,

K.C. Carruthers, CFRE
Chair

Additional Resources

AHP response:
https://www.ahp.org/resources-and-tools/ahp-connect/ahp-connect-details/tax-and-accounting-changes-coming-to-canada-in-2023

Article from Malcolm Burrows of Scotia Wealth Management:
AMT and Donations - All About Estates

Submission by CAGP:
CAGP submission made to the Department of Finance

To contact the Ministry of Finance directly:

Trevor McGowan
Associate Assistant Deputy Minister
Finance Canada
90 Elgin Street
Ottawa, ON  K1A 0G5
By e-mail: trevor.mcgowan@fin.gc.ca