How Changes to the Alternative Minimum Tax May Affect Your Giving
The federal government is making changes to the tax system in 2024, aimed at better targeting high-income earners. While most people will likely remain unaffected, donors should consider how it may impact their giving and adjust their planning accordingly.
The Alternative Minimum Tax (AMT) system imposes a minimum tax on taxpayers who claim specific deductions, exemptions, or credits that significantly reduce their tax liability under the regular income tax calculation. As part of the 2023 federal budget, the AMT rules will change:
- The changes include an increase in the AMT rate to 20.5% from 15%, expanding the AMT base, and raising the income threshold below which AMT will not apply ($173,000 in 2024).
- The latest adjustments might throw some curveballs for those who earn tax-preferred income or claim specific deductions. Brace yourself for potential changes in areas like significant capital gains or losses brought forward from the previous year.
- Now only 50% of the donation tax credit will be allowed when calculating the AMT.
- Any capital gain on donated securities will no longer be tax-free: 30% of the capital gains on securities donated in-kind will be included in income.
Implications to the Charitable Sector
Talk about bad timing! Charities are already grappling with a double whammy of surging inflation and a tough job market, but they’re also facing an avalanche of demand for their services. While the changes will affect the Foundation in some ways, we will certainly see a harsher impact on many United Church ministries and organizations we support. They may see a decrease in gifts made through donations of securities through the Foundation (among other direct major gifts), and we will likely see an increase in the number of grant applications we receive, as groups look for alternatives funding sources.
Bruce MacDonald, President of Imagine Canada, wrote in a letter to the Department of Finance last month, “even if the impact of the AMT changes (by conservative estimate) amount to a 5% reduction in overall donations, charitable sector revenues will decline by over half a billion dollars. This is enough to ensure many organizations will cut programming or close their doors, Canadians will lose meaningful jobs, and communities will face the loss of vital services.
“Income inequality is a national concern, but one that will not be addressed through efforts that seek to limit the ability of charities to serve their communities. The proposed AMT changes will reduce the incentive for a key category of individuals to maintain current donation levels to charities.“
So what can you do?
First and foremost, please speak with your financial advisor to determine the most appropriate course of action. They may recommend that you trigger a capital gain, flex your employee stock options, or donate before the year-end. If you’re feeling extra charitable, you can bid adieu to AMT implications by transferring securities to a Foundation Gift Fund by December 31st. Then, you can distribute the proceeds as needed next year to your church, United Church camp, Mission and Service, etc (along with other Canadian charities you support). And we’d love to chat with you about how establishing a long-term fund can help you fulfill your philanthropic goals.
If you’re a church leader or simply concerned about the impact the AMT rules may have on the ministry you love, we’ve also created some resources you can use in your community of faith or organization to encourage gifts of securities in 2023.
What you should do now:
- Contact your financial advisor and tax professional to understand how changes to the Alternative Minimum Tax may affect you and your charitable giving goals
- How will changes to the AMT affect the charities and causes you support and their ability to deliver services? Talk to them about the expected impact
- Consider how making a bigger gift in 2023. Using a Gift Fund (that’s what we call it when you make a gift of securities to distribute the proceeds, like a short-term donor-advised fund) at the United Church of Canada Foundation, and/or establishing a donor-advised long-term fund might work for your situation
- Join the advocacy efforts spearheaded by organizations like Imagine Canada, AFP and Canada Gives
What are your thoughts on the changes? Get in touch if you’d like to discuss further, have questions about how the tax changes apply to your giving, or need guidance on how these changes will affect giving to your community of faith or other ministry. Call 1-866-340-8223 or email firstname.lastname@example.org.