By Terrance S. Carter and Theresa L.M. Man

Our August 2023 Charity & NFP Law Update explained the Department of Finance’s proposed legislative changes to the alternative minimum tax (“AMT”) rules, and the negative impact this will have on future transformational gifts by high net worth donors to charities in Canada. In response to the Government of Canada’s proposal for feedback, Imagine Canada and the Canadian Association of Gift Planners (“CAGP”) have both made substantive submissions voicing concerns about the proposed amendments and their potential impact on charitable donations in Canada, as well as their recommendations. CAGP’s submission was endorsed by 180 signatories and sent to the Department of Finance on September 25, 2023.

The submission by Imagine Canada recommends against the implementation of the proposed amendments to the AMT. While acknowledging that income inequality is a national concern and wealthy Canadians should pay their fair share of taxes, Imagine Canada argues that limiting tax incentives for charitable donations to accomplish this goal will disincentivize the only category of donors (i.e., higher income Canadians) whose contributions bridge the gap left by declining donations from others in recent years. Rising inflation, a challenging labour market, and a rising cost of insurance are already straining charities’ ability to operate.

Imagine Canada also criticizes the Federal Government’s contradictory and incoherent policy strategy for the charitable sector. The Government recently invested resources to increase the disbursement quota of foundations to boost charitable spending, in addition to setting up a $400 million fund to compensate for lost donation revenues. However, the proposed AMT changes targeting charitable giving conflict with those initiatives by potentially limiting donations to charities, something which Imagine Canada asserts is not supported by Canadians. As suggested by a poll by Imagine Canada, a majority of Canadians support current tax incentives of charitable giving and believe that the Federal Government is not doing enough to support the sector’s work. Overall, Imagine Canada recommends that the Government release projections on the impact of AMT changes on charitable sector revenues and donor behavior, maintain a 0% inclusion rate for capital gains on donations of publicly listed securities, and preserve the full charitable donation tax credit in the AMT calculation.

Similarly, the submission by the CAGP urges the Government to reconsider the proposed AMT amendments. The proposed amendments to the AMT rules aim to broaden the base of high-income taxpayers subject to AMT by denying a number of tax deductions, reducing non-refundable tax credits, and increasing the AMT tax rate. The CAGP argues that these changes could discourage high-valued donations, which are essential for the charitable sector’s sustainability and ability to provide vital services to Canadians. The CAGP posits that restricting access to full donation tax credits wrongly suggests that Canadian individual taxpayers who make altruistic decisions to support qualified donees are somehow enriching themselves by claiming such tax credits. The submission argues that any claw back of the charitable donation tax credit undermines the Government’s tax policy to support the charitable sector’s work and disrupts private wealth transfer to charity in Canada. The CAGP also points out the Government’s inconsistent approach to promoting charitable giving, particularly in supporting ongoing operations of qualified donees through incentivizing private philanthropy. The CAGP highlights that historically, transformational donations represent approximately 35% of total charitable gifts in Canada. Therefore, up to one-third of the annual $11.8 billion in charitable giving by Canadians could be negatively impacted by the proposed changes to the AMT rules.

The CAGP recommends that the Government exclude donation tax credits from the basic minimum tax credit calculations and reconsider the proposed changes that affect non-cash gifts of capital property and publicly listed securities. The submission emphasizes the importance of maintaining a supportive tax policy to encourage private funding of qualified donees. The CAGP also provides a number of real-world examples of transformational gifts made by philanthropists in Canada to illustrate the potential negative impact of the proposed AMT changes on charitable donations.

Both Imagine Canada and the CAGP are concerned that the proposed amendments to the AMT rules will deter high-value charitable donations and undermine the vital work of the charitable sector. They argue that maintaining tax incentives for charitable giving is crucial for sustaining the sector. They call for a reconsideration of the proposed changes and greater transparency in assessing the potential impact on charitable donations and the sector as a whole.

These recommendations are abundantly sensible and essential to maintaining a vibrant charitable sector in Canada. Hopefully, the Department of Finance will be listening.

​Read the September 2023 Year Charity & NFP Law Update