Government Relations Alert - October 2024

CAGP’s Government Relations Committee continues to monitor changes to the legislative environment and tax policy that impacts charitable giving. CAGP is pleased to provide an alert on a couple of matters that may be pertinent to our members in their work with donors or in providing philanthropic advisory services to clients. We are grateful for the oversight and expertise on this team.  

Planning Opportunity:  Capital Gains Inclusion Rate  
On June 25 the capital gains inclusion rate changed from 50% to 66.67% for corporations and trusts, as well as for individuals with capital gains over $250,000.  In anticipation of this change many people sold securities before the deadline to take advantage of the lower rate.

Some charities saw an increase in donations in June because donors also made charitable gifts to reduce the taxes on these sales. This opportunity still exists. Donors who have not yet made a charitable donation may still have time to make a gift to reduce these taxes. Individuals have until December 31, 2024 and corporations have until the corporation’s fiscal year end to make a charitable gift to offset taxes for the year.   

An Update on the Alternative Minimum Tax (AMT)
The 2023 Federal budget changed the AMT landscape drastically with particular effects on charitable donations. The donation tax credit was to be limited to only 50% value for AMT purposes. 30% of the untaxed gain on a gift of marketable securities was to be added to AMT income. Generally, the increase in AMT tax for large capital gains would act to harm gifts of capital property such as real estate. CAGP’s Government Relations Committee made representations to the Department of Finance illustrating the negative effects.

It is 16 months later and there have been changes which have reduced the AMT effects on giving.

First, the donation tax credit for AMT purposes has been moved to 80% from 50%, which is good news. This change may not have eliminated AMT in all gift situations, but at least has reduced the pain. The 30% marketable security addback of gain is still required, and thus AMT may still be a factor, but much less now.

Second, and nothing to do with the AMT law, as mentioned above the capital gains inclusion rate has increased from 50% to 66.67% for gains over $250,000 for individuals. This does not change the AMT calculations, but if basic tax increases the chances of AMT arising diminishes. In essence for large capital gains which may arise from a gift of real estate or private company shares, AMT liability is replaced with basic tax liability, which is not a plus, as AMT liability is at least potentially refundable over a 7-year period. Effectively our previous concern for large capital gifts resulting in an AMT liability is no longer an issue for most gifts.

Third, mining flow through donation shelters, which in 2023 contributed over $300,000,000 to Canadian charities, had been severely affected by the AMT rules. However, the Department of Finance announced recently that exploration expenses need not be added back for AMT purposes, which will countervail the other provisions. Thus this form of tax planning, and method to make donations has been revived.