Alternative Minimum Tax and Charitable Donations of Publicly Listed Shares
Normally most Canadians are not subject to Alternative Minimum Tax.
Written by Darin Thompson, CFA, FEA
One of the most tax efficient means to support a charity has been the donation of publicly traded securities. The Federal Budget of 2023 instituted changes to how these donations MAY be taxed. Notwithstanding the budget changes of 2023, donating marketable securities remains a very tax efficient option to support charities like the Collingwood Hospital Foundation.
In the 2023 Federal Budget, the government announced their intention to target the Alternative Minimum Tax (AMT) to high-income individuals, through several changes made to the rules for calculating the AMT, beginning in 2024.
Every year, an individual’s tax owing is calculated under the regular method, which considers preferential tax credits and deductions. This tax-owing figure is then compared to a secondary calculation excluding these credits and deductions with tax calculated at a lower tax rate. Individuals are responsible for remitting the greater of the two calculations. The difference between the regular amount owing and the secondary calculation is the AMT.
Though there are various alterations to the calculation of AMT beginning in 2024, the most impactful change for a registered charity like the Collingwood Hospital Foundation is the change to the inclusion rate for publicly listed securities donated in-kind. Specifically, the change to AMT impacting in-kind donations is;
- The inclusion rate for capital gains resulting from the donation of publicly listed securities will be changed to 30 percent from 0 percent.
Under the regular tax calculation, donors who make in-kind donations to a registered charity of publicly listed shares not only get a tax receipt equal to the fair market value of the securities donated (and can claim a non-refundable donation tax credit), but they also do not pay tax on capital gains on the donated shares. Prior to the 2023 budget this zero-inclusion rate for capital gains on in-kind donations of publicly traded securities also applied for AMT purposes.
Starting in 2024, individuals will now have to include 30% of capital gains on publicly listed securities that are donated in-kind when calculating AMT.
Individuals should consult their tax professional to see how AMT could affect their situation in 2024, and, if appropriate, consider making charitable gifts in 2023, when the current AMT rules may result in no (or lower) AMT.
It should be noted that the Federal Budget did not remove the ability to recover AMT through the 7-year AMT carry-forward period. If an individual must pay AMT (either under the current rules or the new rules), they will still have the ability to recover AMT through the 7-year AMT carry forward period.
This article reflects the personal opinions and views of the author at time of writing only and should not be construed as an offer or solicitation to buy or sell any securities and is not to be used as a sales communication. This material has not been prepared or approved by or for Connor, Clark & Lunn Private Capital Limited and does not constitute tax or investment advice. Readers should seek the advice and guidance of registered tax and investment professionals as applicable for their unique circumstances, including personal philanthropic goals, tax calculations and remittance.
Please don’t hesitate to get in touch if you have any questions or if you would like to talk through what’s involved in donating publicly traded securities to the Collingwood Hospital Foundation. firstname.lastname@example.org | 705-444-8645
Darin Thompson is a Wealth Advisor/Portfolio Manager with Connor, Clark & Lunn Private Capital Ltd. and has over 25 years of experience in the investment management industry, both from a private client and institutional perspective. Darin is an active board member for the Collingwood G&M Hospital Foundation.