A change in the 2023 federal budget to the treatment of donations of publicly traded stocks that have gained in value since an individual acquired them could have a negative impact on the tax benefit to the donor starting in 2024.
For certain donors, it may be beneficial to donate prior to the end of calendar year 2023 instead of waiting until 2024. The following outlines some instances where this may be true.
The 2023 budget expanded the ways in which something called the ‘Alternative Minimum Tax’ will be applied in future years, beginning with January 1, 2024. There are a number of descriptions available from various professional services firms. One such description is as follows:
The alternative minimum tax (or AMT) is exactly as it sounds: it is an alternative method to calculate the income tax you owe in Canada. This tax is often applicable when you have claimed a preferential tax deduction like the capital gains deduction/capital gains exemption or have preferential tax rates due to credits, such as dividend tax credits.
Each year, your tax owing is calculated under the normal method, which considers the preferential tax credits and deductions. This number is then compared to a second calculation where you don’t receive these same credits and deductions, but your tax is calculated at a lower tax rate. For most instances, the normal calculation will result in more tax owing. When the second calculation results in a higher amount owing, you will pay this higher amount. The difference between the regular tax owing and the second calculation is the AMT.
(https://www.mnp.ca/en/insights/directory/what-is-the-alternative-minimum-tax-and-why-am-i-paying-it)
For donors who will most likely be found in the highest tax bracket, donating via gifts of publicly traded securities could be less beneficial to them financially after the end of 2023. The following illustration outlines how the changes might affect a potential donor.
Martha has publicly listed securities with a fair market value of $800,000 and an adjusted cost base of $200,000. Martha makes an in-kind donation to a registered charity of 20% of the securities and sells the remaining 80% of the securities. This table highlights the impact of the AMT legislation on Martha’s situation. This example only reflects federal income taxes and does not consider provincial income taxes.
| Securities sold | Donated securities | Total | |
| Fair market value of securities | $640,000 | $160,000 | $800,000 |
| Adjusted cost base of securities | $160,000 | $40,000 | $200,000 |
| Capital gain | $480,000 | $120,000 | $600,000 |
| Regular tax calculation | Current AMT calculation (2023) | AMT calculation (2024) | |
| Taxable capital gains on donated securities | $0 | $0 | $36,000 |
| Taxable capital gains on securities sold | $240,000 | $384,000 | $480,000 |
| AMT exemption | n/a | ($40,000) | ($173,000) |
| Taxable income / Adjusted taxable income | $240,000 | $344,000 | $343,000 |
| Estimated tax on taxable income | $55,473 | $51,600 | $70,315 |
| Donation tax credit | ($46,372) | ($46,372) | ($23,186) |
| Tax / Minimum tax | $9,101 | $5,228 | $47,129 |
| AMT | n/a | $0 | $38,028 |
Under current rules, the minimum tax of $5,228 is less than the regular tax of $9,101, therefore no AMT applies. For 2024, the minimum tax of $47,129 is more than the regular tax of $9,101, therefore, Martha’s AMT will be $38,028.
At Global Philanthropic Canada, we are invested in assisting our valued clients with their fundraising plans. We’re ready to partner with you in your journey to drive more money to your mission. Let’s elevate your mission, together.
Disclaimer: As always with discussions about possible donations to a charity, fundraising professionals should advise any potential donors to seek guidance from their personal wealth advisors/accountants/lawyers.
