Charitable Tax Breaks Get a Boost in 2024 Federal Budget
Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
I Execute Tax-Efficient Investment Portfolio Solutions So That Your Business, Family, And Estate Assets Are De-Risked And Protected Against Financial Risk, Economic Threats, Inflation And Higher Taxes.
Relief for Donors Concerned About the Alternative Minimum Tax
For Canadian philanthropists, the 2024 federal budget delivered some welcome news regarding the tax treatment of charitable donations. In response to concerns from the charitable sector, the government has increased the percentage of donation tax credits that can be claimed when calculating the alternative minimum tax (AMT).
What Changed for Charitable Donations and the AMT?
Originally, the 2023 federal budget proposed that only 50% of charitable donation tax credits could be included when calculating AMT, down from 100% under the previous rules. However, the 2024 budget has revised this to allow 80% of the charitable donation tax credit to be claimed for AMT purposes.
According to tax expert Jamie Golombek of CIBC Private Wealth, this change addresses worries that the revised AMT rules could deter large charitable donations. "Significant charitable gifts should no longer, on their own, attract any type of AMT consequences," he stated.
Why It Matters for Donors
The AMT exists to ensure that higher-income Canadians pay a minimum rate of tax by limiting certain deductions and tax credits. Under the earlier 2023 proposal, major donors may have faced AMT despite giving substantially to charity.
With only 50% of donation credits being AMT-eligible, and the top federal donation credit rate being 33%, the maximum applicable credit rate would have been just 16.5% for AMT calculations. This is lower than the upcoming 20.5% AMT rate, meaning charitable gifts could still trigger AMT liabilities.
By raising the eligible portion to 80%, the maximum creditable amount increases to 26.4% (80% of 33%), which exceeds the 20.5% AMT rate. "Effectively, this means you will no longer be precluded from taking full advantage of charitable donations for AMT purposes," explains Golombek.?
Some Caveats Remain
While the 80% rule for cash donations is a clear win for donors, there are still some limitations. The budget retained a proposal that 30% of capital gains from donating publicly listed securities must be included in AMT income.?
Under regular tax rules, none of the capital gains on such donations are taxable. Whether the 30% inclusion is enough to trigger AMT will depend on each situation, notes Golombek.
Continuing to Support Canadian Charities?
Overall, the 2024 budget adjustments should provide reassurance to philanthropists concerned about maintaining their charitable impact. By ensuring significant donations don't inadvertently create AMT exposure, the government is prioritizing policies that facilitate charitable giving in Canada.
For those looking to maximize their charitable strategies and tax planning opportunities, professional financial advice remains invaluable. Proactive planning can ensure your legacy of generosity continues uninterrupted.
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Complimentary Portfolio Evaluation
As a valued reader, I'm offering a complimentary portfolio evaluation to assess if your investments are optimally positioned to minimize the tax impact under this new tax regime.
During this no-obligation consultation, I can provide insights into how to navigate these changes, preserve wealth, and keep your financial plan resilient.
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