Changes to the AMT Will Impact Donors of Public Securities

The Alternative Minimum Tax (AMT) is a tax system that ensures that high-income individuals pay their fair share of taxes. The Canadian government recently made changes to the AMT as part of the 2023 budget. In this blog post, we will discuss how these changes will impact donors of publicly listed securities.

Background on AMT

The AMT was introduced in 1970 to prevent high-income taxpayers from using deductions and credits to pay little or no taxes. It is a parallel tax system that requires taxpayers to calculate their tax liability twice, once under the regular tax system and again under the AMT system. The taxpayer then pays the higher of the two amounts.

Changes to the AMT

The changes to the AMT in the 2023 budget are designed to ensure that high-income individuals pay more taxes. The changes include:

• Increasing the AMT rate from 15% to 20%

Impact on Donors of Publicly Listed Securities

Donating publicly listed securities to charities is a popular way for high-income individuals and corporations to reduce their tax liability. The changes to the AMT will impact donors of publicly listed securities in several ways.

Increased Tax Liability

The increase in the AMT rate from 15% to 20% means that donors will pay more tax on the value of the securities they donate. For example, if a donor donates $100,000 worth of publicly listed securities, they would have paid $15,000 in AMT under the old system. Under the new system, they will pay $20,000.

Lower Exemption Threshold

The lower AMT exemption threshold means that more high-income individuals will be subject to the AMT. This means that donors will have less flexibility in using the AMT exemption to reduce their tax liability.

Removal of AMT Exemption for Capital Gains

Under the old system, donors could use the AMT exemption to reduce the tax liability on capital gains from the sale of publicly listed securities. This exemption has been removed, which means that donors will have more of their capital gains captured by the AMT.

AMT Changes: The Bottom Line

What is the result of the changes to the AMT on donations of public securities? Less donations to Canadian charities.

We seem to be living in a time when attacking the rich is ok. Especially when we donate our wealth to philanthropic causes. Somehow, such altruism is being mis-represented by some as one way the rich avoid paying taxes.

When in fact, charitable donations cost donors economically (by law, charitable donors cannot receive any private benefit from their donations). Donors don’t gain economically by donating to charity, despite how donations are typically mis-represented by some media.

As Canadian charities receive less from wealthy donors as the result of changes to the AMT rules, who will fill the void? Probably the government. Governments seem eager to raise taxes and then re-distribute this revenue to a variety of projects including increased funding for Canadian charities. Look closely at the financial statements of many large charities and you’ll see the rising share of revenue being received from government donations.

Click Here to read another post we wrote about changes to the AMT in 2023.