This is one in a series of articles in our special report, “The Changing Face of Philanthropy in Canada.” To see other articles in the series, click here.
For almost 40 years, the Canadian Alternative Minimum Tax (AMT) has been in effect to set a floor for the tax liability of high-income Canadians who might otherwise use tax incentives to pay little or no tax. Since new rules on AMT received royal assent on June 20, 2024, there has been widespread concern that they might discourage large charitable donations from high-income donors.
Now, with the first full tax year affected by the changes in the rearview mirror, it’s worth asking: Has that happened?
It’s too early to parse the hard data on how the AMT has affected charitable donations for 2024. Respondents to a Canadian Family Offices survey of family office advisors and donors earlier this year found that few had reduced their giving in 2024 or planned to in future. But among charitable organizations and philanthropic sector observers, there is plenty of anecdotal evidence that the changes are indeed having an impact.
The new rules impacting charitable donations under Bill C-69 are significant. Among them:
- 100 per cent of capital gains are included in the AMT base, up from 80 per cent.
- 30 per cent of capital gains on the donations of qualifying securities are included in the AMT base, up from zero.
- Deductions for the donation tax credit are now just 80 per cent, down from 100 per cent.
- The AMT rate increases to 20.5 per cent, up from 15 per cent.
- The AMT total exemption increases to $173,000, up from $40,000.
Because the new rules affect only the small number of taxpayers who pay the AMT, briefing materials on Bill C-69 from the federal Department of Finance anticipated that “the new Alternative Minimum Tax rules are expected to have a relatively limited impact on charitable donations, and an even smaller effect on overall charitable revenue.”
But Canadian charities, philanthropists and financial advisors have fired back. They argue that the original deductions for large charitable donations were not being used as a tax avoidance strategy, but rather to lower the cost of donating and made these donations go further. Appeals by the charitable sector earned one carve-out from lawmakers on the original proposal, which would have seen deductions for the donation tax credit reduced to 50 per cent: all other non-refundable tax credits under AMT remain at 50 per cent, with only charitable donations raised to 80 per cent.
Now, in a year that includes the after-effects of a massive postal strike and concerns about tariffs and other economic upheavals, the charitable sector doesn’t share the government’s rosy outlook for donors affected by the AMT.
“There are three things we’re hearing from charities,” says Bruce MacDonald, president and chief executive officer of Imagine Canada, an organization dedicated to advising Canadian charities and non-profits. “When the changes were announced, there were some folks who rushed to make a contribution before they took effect. We also heard loud and clear from organizations who were hearing from donors that this would affect their giving—and not in a positive way. It included everything from ‘I’m not going to be able to give the amount I wanted to’ to renegotiating a donation pledge downward or extending it into further tax years. Finally, the change appears to be affecting ongoing revenue streams for these organizations.”
MacDonald notes that the federal government created the Community Services Recovery Fund, a $400-million cash infusion to support charities and non-profits through pandemic and post-pandemic challenges. That fund, however, concluded its work in June 2024.
“While it was great to get this one-time support, the potential negative consequences of AMT can extend for many years,” he says. “As far as we can tell, government modeling significantly underestimated what might happen for operating charities. It’s a case of a tax policy change being contemplated without having knowledgeable civil servants within the government who calculate the actual implications before it gets to the legislation design stage.”
How common is it for donors to trigger AMT?
Armando Minicucci, partner, tax with Doane Grant Thornton LLP, notes that philanthropic activity for most of the firm’s clients hasn’t been affected by AMT, simply because Canadian tax rates are so high that it doesn’t take a significant income to reach the top brackets. At that level, it’s less likely that deductions will be sufficient to trigger the AMT threshold.
That said, large donors who are affected by AMT can work with advisors to develop strategies designed to minimize its effect on donations. For example, AMT doesn’t apply in the year of a donor’s death, so donations made through a will may be the most tax-effective route. Donations made by corporations also continue to be 100 per cent deductible and are never subject to AMT.
Donors who are on the AMT threshold can also take steps to ensure that they remain within the regular tax regime.
“Look at some of the items that get factored into the adjusted taxable income for AMT purposes,” he says. “You might choose, for example, to take deductions for loss carry-forwards and forward them for another year, which means you’ll pay more regular tax, but also have regular tax treatment for donations.”
If you have a big sale of assets that triggers a capital gain, AMT may be unavoidable.
Armando Minicucci
Minicucci also notes that the AMT offers tax credits that can be applied for up to seven years. Managing income levels going forward can be an effective strategy to claim those credits against regular tax rates—while continuing to claim the full credit for charitable donations.
“If you have a big sale of assets that triggers a capital gain, AMT may be unavoidable,” he says. “For example, if you sell a farm property or shares in a private company, and you claim the lifetime capital gains exemption, it may result in AMT being payable that year. The game plan is monitoring your income to make sure you’re not paying AMT in the subsequent years so that you’re able to use the refundable tax credit against regular taxes for the amount of AMT you paid before.”
Those who donate to charities in the form of publicly traded securities are also more likely to trigger AMT. Minicucci suggests they may wish to stagger those donations to every other year—paying AMT one year and clawing it back as a refundable tax credit the next.
“For anyone intending to make a sizable gift, we would encourage them to sit down with their accountant or tax advisor to see if AMT will have any impact on their giving,” he says.
Establishing a fund or endowment can also help donors subject to the AMT manage their donations, says Glenn Gumulka, CEO of the Mississauga Foundation. Funds are created to become self-sustaining, with assets managed by private wealth advisors with a goal for returns to continually outpace disbursements. Community foundations can also accept donations of securities and life insurance—something for which smaller charities may not be equipped.
Gumulka notes that a fund or endowment can be established with as little as $25,000 and that a charitable receipt is issued the year any funds are transferred into it. Donors can mitigate the effect of AMT by plumping up the fund in those years where AMT doesn’t apply and get full deductions for their donation. The money can then be disbursed at any time to assigned charities and causes—or distributed under a donor-advised fund—with no further tax consequences.
“High-value donors making large donations also want to make sure their money is going to a good cause,” Gumulka says. “They don’t want to make spur-of-the-moment decisions at tax time that they may regret later. Setting up a fund is like parking your money, so you can make those strategic granting decisions when it’s more convenient for you.”
While donors may be able to mitigate the effects of AMT, MacDonald says that charities will have to work more closely with donors to keep the charitable pipeline flowing.“For many organizations leaning into this marriage between mission and tax, it will be critically important to continue to keep a fire burning under those donors who have been so generous,” he says. “They need to work together to understand how to manage this challenge.”
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