The Alternative Minimum Tax (“AMT”) legislation is undergoing significant changes which are expected to impact charities. In this post, we will explore what the AMT is, summarize the proposed changes, and discuss the implications for charities.
What is the AMT?
The Alternative Minimum Tax (“AMT”) was initially designed to ensure individuals and trusts pay at least a minimum level of tax. It generally targets high-income earners who use specific strategies and structures to pay preferred (e.g. lower) tax rates due to credits and/or deductions. When preparing your tax return, a calculation is completed to determine whether you may have to pay the minimum tax. If so, then the T691 AMT form is used to calculate your taxes payable. Most individuals and trusts to whom the AMT applies are likely using the services of a professional tax preparer who can advise them on the details of the AMT process, including any impact on provincial taxes.
What are the changes?
On August 4, 2023, The Department of Finance released Legislative Proposals Relating to the Income Tax Act and the Income Tax Regulations (Budget 2023 and other proposals). The key modifications include:
- Raising the AMT rate from 15.0% to 20.5%.
- Increasing the exemption amount from $40,000 to $173,000, with annual indexing for inflation.
- Raising the capital gains inclusion rate for donations of publicly listed securities from 0% to 30%.
- Including the capital gains on gifts of capital property to charities at a rate of 100%.
- Reducing the basic minimum non-refundable tax credits by half.
The proposed changes to the AMT are slated for implementation in 2024.
Impact on charities
Registered charities may feel the effects of these AMT changes, particularly in terms of donation revenue. Historically, donors have enjoyed significant tax benefits by donating publicly listed securities and capital property to charities. The proposed rules will reduce these benefits for donors who are subject to the AMT. As a result, donors may be less willing to give securities, property, or even cash donations.
What can charities do?
In light of these impending changes, charities can:
- Engage with your regular donors who may be subject to the AMT and ensure they are aware of the proposed changes;
- Encourage donors to speak to their professional tax advisors on the impending changes;
- Make the “ask” simple to make donation decisions easy – for some donors, it may be prudent to donate before the changes take place. Contact the CCCC Community Trust Fund if you need gift planning/fundraising resources;
- Raise concerns about the impact of these changes with your local Member of Parliament and the Minister of Finance.
Next steps & donor options
Although the AMT applies to very few donors, for a small percentage of donors, the changes presented will make a significant impact on their gift planning process. These donors should consult with their professional tax advisor regarding the best option from a tax perspective.
For donors aiming to make a lasting impact with a large, legacy-sized contribution, the ability to have a dynamic beneficiary organization list is often important to their giving strategy.
Donor Advised Funds (DAFs) are a charitable vehicle established within a registered charity, usually as an ‘account’ or ‘fund’. DAFs allow donors to receive charitable donation receipts immediately, while the funds are stewarded by the charity and distributed for certain causes at a later date. The funds are invested to either generate income or grow, and to be distributed to charities on a regular schedule or by a certain date.
For a donation to be receipted, the property’s ownership must be transferred to the charity. Despite the donor relinquishing ownership and control of the property to the charity, the charity may still consider the donor’s suggestions when allocating the funds over time. Please contact CCCC’s Community Trust Fund (CTF) for best practices, policies and agreements for starting a DAF.
Some charities operate their own DAFs while many choose to collaborate with a third-party such as CCCC’s own Community Trust Fund (CTF). Working with a third party such as the CTF can be of great help for sophisticated giving/asks, and for facilitating DAFs for major or emerging donors. The CTF allows donors to benefit Christian charities in Canada with their gifts of securities in an easy and cost-effective process, while relieving the burden of administrative capacity for the beneficiary organization. Find out more at https://www.cccc.org/ctf.
By staying updated on the forthcoming changes and exploring various ways to serve their donors, charities can effectively adapt to these changes, ensuring continuous financial support for their ministries.