Government Increases Claimable Amount for Charitable Donations Under AMT Rules

The federal government’s recent changes to the alternative minimum tax (AMT) rules regarding charitable donations have been met with relief and appreciation from experts in the financial and charitable sectors. The increase in the claimable amount for the charitable donation tax credit under the AMT regime is seen as a positive step that will benefit Canadians who make significant charitable gifts.

The new AMT regime, proposed in the 2023 federal budget, includes raising the AMT rate to 20.5 per cent and increasing the exemption amount to $173,205, indexed to inflation. Additionally, the government reduced the percentage of some non-refundable federal tax credits, such as the charitable donation tax credit, that can be applied against the AMT to 50 per cent.

Initially, the proposal to lower the claimable amount for the charitable donation tax credit raised concerns in the charitable sector, as it was feared that high-net-worth donors would be discouraged from making substantial gifts. In response to the feedback, the 2024 budget adjusted the rules to allow individuals to claim 80 per cent of the tax credit under the AMT.

Experts like David Christianson and Jamie Golombek have praised the government for listening to feedback and making changes that will help individuals using the donation tax credit to offset taxes under the AMT. The adjustments are expected to prevent many Canadians from triggering the AMT and facing unexpected tax consequences.

While the changes are generally seen as positive, there are still areas, such as the donation of publicly traded securities, where clients could potentially face the AMT. However, overall, the analysis suggests that very few Canadians will pay the AMT under the 2024 rules, especially if their income sources are limited to taxable employment, professional, or business income.

Financial planners like Morgan Ulmer emphasize the importance of strategic financial planning to navigate the AMT and ensure that clients can recover any taxes paid under the AMT over the following years. By taking proactive steps, such as making RRSP contributions in advance or negotiating payment terms for business sales, individuals can mitigate the impact of the AMT on their finances.

Overall, the changes to the AMT rules regarding charitable donations are seen as a positive development that will benefit both donors and charitable organizations in Canada.