2023 Federal Budget: An Analysis by Bobby Kleinman

Bobby Kleinman, FCPA, FCA - Member of the CAGP Government Relations Committee

The Federal Budget has raised much controversy on the plethora of new spending buckets and in some cases the perceived lack of spending in other buckets. There was not much there for CAGP members to get excited about.

In fact, there were changes to how personal tax is calculated which does have an effect on gift planning perhaps inadvertently. This relates to new calculations for Alternative Minimum Tax (AMT), effective for 2024, which may act to reduce donations made by wealthy Canadians. AMT is a second tax calculation which removes most tax shelter deductions in the calculations. This higher taxable income is taxed at a lower rate (15% before). You pay the higher tax – the normal calculation or the AMT calculation. This limits unlimited use of tax shelters and ensures all Canadians pay some tax.

The tax rate for AMT is increasing to 20.5% and there are new add-backs to AMT income including a percentage OF THE CAPITAL GAIN EXEMPTION ON A DONATION OF APPRECIATED SECURITIES. The new regime will only apply to taxpayers who show hundreds of thousands of income, but a Canadian individual wishing to give large numbers of securities or options will have an additional factor to consider. Somewhere the amount of gift will not reduce tax because of AMT- and thus the natural reaction will be to hold the donation to the safe level, which, of course means less donation.

Those who fund donations via mining flow-throughs have always looked at AMT as a limiting factor in the quantum of share purchase and thus donation. With more AMT add-backs and a higher AMT rate the same taxpayer will effectively purchase less and reduce the donation.

These changes will only affect a small percentage of Canadians, but these are the ones that we entice to donate with gift planning techniques. The change to appreciated security gifts is particularly unsettling. This benefit was advocated by the charity system including CAGP two decades ago and has had a very positive effect on giving. The new provision has us going backwards.