2024 Federal Budget highlights for philanthropists: AMT adjustment a win for donors

The charitable sector breathed a measured sigh of relief last week when the 2024 federal budget was tabled, after the federal government first proposed measures in 2023 that would limit tax exemptions, credits and deductions relating to charitable donations—particularly those focused on AMT filers. Why? The longstanding perception has been that high-earning Canadians use their generosity—including structures such as private foundations and Donor Advised Funds—to minimize their tax burden. As we’ve argued repeatedly, nothing could be further from the truth. Charitable donations are an expense for philanthropists, not some form of tax shelter.

The proposed 2024 budget measures relating to the AMT are far from perfect, but they are a step in the right policy direction. Specifically, the budget proposed a revision that would allow individuals to claim “… 80 per cent of the Charitable Donation Tax Credit when calculating AMT.”  The previously proposed claim amount was 50 per cent—a limit that sparked immediate opposition from across the sector with many charities, philanthropists and financial advisors arguing that such a cap would discourage the kind of larger donations that not only help provide much-needed operational funding to charitable organizations, but can also be transformative major gifts for the sector.

Before the proposed 2023 amendment, 100 per cent of charitable donations could be claimed when calculating AMT. The 2024 budget change will mean—in the majority of cases—that higher-income philanthropists will be able to take full advantage of the donation tax credit for AMT purposes. If the donation tax credit had remained at the proposed 50 per cent level, some philanthropists could have been subject to additional tax when making a large charitable donation. The news isn’t all good. As we noted in a previous blog, “ … the new AMT measures will apply a 30 per cent capital gain when qualifying securities are donated to a charity.”

Donating through a corporation is now more advantageous for philanthropists as the AMT does not apply to their tax filing. We pointed out earlier that: “… if large donations of publicly-traded securities-in-kind are made through a corporation or estate, they will not be impacted. If the gift of securities is made through a corporation, the tax-free amount of the capital gain can be added to the corporation’s Capital Dividend Account. Any balance in the Capital Dividend Account can then be paid to shareholders as a tax-free dividend. This tax-efficient donation strategy is often overlooked.”

The changes proposed in the 2024 federal budget should, in most cases, protect donors from punitive and unnecessary taxes on their charitable giving, while helping to maintain the flow of large donations to Canada’s charities.

Budget 2024 measures that impact charities

The 2024 federal budget featured several other proposed measures related to the charitable sector, including:

• A proposal to “extend the period for which qualifying foreign charities are granted status as a qualified donee from 24 months to 36 months. In addition, foreign charities would be required to submit an annual information return to the Canada Revenue Agency (CRA) that includes the total amount of receipts issued to Canadian donors, the total amount of gifts received from qualified donees, and information on how those funds were used”
• Amendments that would improve Canada Revenue Agency communications and service levels for registered charities and other qualified donees
• A change that would allow the CRA to deliver some notices digitally to charities
• A removal of a requirement that the revocation of the registration of a charity or qualified donee be effective upon publication in the Canada Gazette, instead making a revocation effective upon the publication of an official notice on a government webpage
• Simplifying the process for issuing official donation receipts, removing the requirement that official receipts contain:
• the place of issuance of the receipt
• the name and address of the appraiser, if an appraisal of the donated property has been done
• the middle initial of the donor
• Allowing charities to issue official donation receipts electronically, so long as the receipts are issued in a non-editable format, with the charity maintaining a digital copy of the receipt

Budget day was a reminder that when stakeholder groups voice their discontent, federal policies can be amended to address the concerns of those impacted by the policy change in question. Philanthropists—including many Canada Gives Foundation families—have made clear to Ottawa over the past year that tweaking tax policy, to the detriment of the generous Canadians and charities working to make a difference and support communities across the country, was not acceptable.

Thankfully, those voices were loud enough to be heard.

The Canada Gives Team

This content is for information purposes only and is not tax advice. Always consult your team of trusted advisors—including a lawyer and accountant with dedicated tax expertise—for strategic tax planning advice specific to your financial circumstances.