And why you should care
I’m going to ask in advance that you forgive me. This is not a platform that I tend to use as an activist, but today I am going to do just that. And, even worse, I’m going to ask you to get involved, too.
In the 2023 federal budget, the Liberal government proposed changes to how the Alternative Minimum Tax (AMT) is calculated. Since then, the Ministry of Finance has prepared draft legislation to make the change in 2024. This legislation is very likely going to do significant damage to the charitable giving sector.
Ask the Ministry of Finance and they will say that the new AMT calculations will only affect the very top income earners. And on one level that is true. So, if you’re not a top income earner, why should you even care? Unfortunately, this legislation will probably change donor behaviour. The likely result is a massive reduction in donations to Canadian charities. It’s just bad (very bad, if you ask me) public policy. So, if you care about the financial health of charitable organizations, or you believe it’s wise for the government to encourage generosity, then you should care about this legislation.
Full disclosure, I am a director of Abundance Canada, a relatively large donor-advised fund charity in Canada dedicated to promoting charitable values. After reviewing the numbers, we are convinced that the very wealthy will trim their giving if the AMT rules significantly reduce (or completely prevent) a tax break. Even a small percentage of a decrease can equal a massive loss in donations.
It’s pretty simple economics when you think about it. When things cost more, people tend to spend less. When a $100,000 gift costs the donor $46,700 after tax, taxpayers have more of an incentive to give. If, all of a sudden, the after-tax cost jumps to the full $100,000, it’s probably that some (or many) donors will cut the total net donation so it matches what it was under the previous rules. That means $53,300 less to the charity. Multiply that by many thousands of people and it likely means a HUGE hit to charities in Canada. Like I said – bad public policy.
No one can know with certainty how big an impact this will have, but simple economics tells us it will indeed have an impact. I believe it will be a very large one.
So, what can we do? I have two recommendations. My first recommendation is for the lucky few high-income earners who may want to adjust their actions immediately for their own benefit. If you happen to be one of those high-income individuals who will be affected by the new legislation, consider front-loading your giving. Consider contributing next year’s donations (or maybe even a few years’ worth) before the end of this year. Just make sure to talk to a tax professional before doing so.
My second recommendation is for everyone. Whether you are in the high-income category or not, let the government know that you don’t like the idea of them hurting charities. And tell them you know that’s what they are doing with this proposed legislation.
It’s a bit old school, but I suggest writing to your MP. I found an easy way to do this through Imagine Canada, an organization that supports nonprofits and charities in Canada. All you need is an email address and access to a computer. Go to your computer and search for Imagine Canada public policy (https://www.imaginecanada.ca/en/public-policy#campaign).
At the bottom of the page, providing just your postal code will pull up a list of your local MP and any other representatives involved (i.e. Justin Trudeau and Chrystia Freeland) along with a pre-written letter that you can customize to your liking. Even better, simply click the “Add Your Voice” link and Imagine Canada will send the letter for you.
It’s easy! I just did it and I feel better knowing that, even if we don’t succeed, I’ve done what I could to let my voice be heard. I encourage you to do the same.
Obviously, we don’t know if our voices will be enough to change things. That said, I believe that if enough people let the government know that they care about charities and don’t want our government making life harder for organizations that are doing great work, they will (hopefully) be willing to adjust the legislation.
Please share this request via word of mouth, email, or social media to everyone you know. Your actions make a difference.
Arnold Machel lives, works, and worships in the White Rock/South Surrey area. He is a Certified Financial Planner® with IPC Investment Corporation, is the Founder of Visionvest Financial Planning & Services, and sits on the board of Abundance Canada. Visionvest (his firm) has been voted Best Investment/Financial Advisor by Peace Arch News readers for the past two years in a row.
Questions and comments can be directed to him at dr.rrsp@visionvest.ca or through his website at www.visionvest.ca. Please note that all comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of IPC Investment Corporation. While every attempt is made to ensure accuracy, facts and figures are not guaranteed.
Arnold is now accepting a limited number of invitations to speak. If you are interested in having him speak to your congregation or other group regarding money matters, please contact us at admin@visionvest.ca or (604) 542-2818 with your preferred date and time.
Arnold Machel lives, works and worships in the White Rock/South Surrey area and has been writing articles for the Light Magazine for over 10 years. He is a Certified Financial Planner® with Visionvest Financial Planning & Services.
Dear Arnold,
I have normally enjoyed reading your columns but I do not agree with you on this article and I also feel you have not fairly presented the new AMT rules and regulations.
I do tax returns and I am very familiar with Canadian personal income calculations. This new AMT applies only to tax payers with income over 173,000. We are basically talking the top 1% of income earners in Canada. You forgot to mention this highly important fact in your article. You are correct that it may impact charitable giving but it is hardly fair that giving securities to charities that high net worth earners are avoiding all income taxes on the taxable capital gains on that. I have always felt that in our Canadian income tax system we have way too many tax breakers and the rich are taking advantage of them all because they have the financial means to do so where as poorer Canadians do not have the means or abilities to be able to take advantage of these tax breaks and therefore pay higher unfair proportion of income taxes. I have used many of these income tax breaks on my clients and have proactively recommend them to them. I personally feel the new AMT is a step forward to ensure that rich people pay a fair share of income taxes. The other important part about the AMT, which you did not mention, is that if a rich person has lower income and taxes in future years the AMT will be refunded so it is not really a negative tax at all.
Hi Gunther,
Thanks for your comments. I so much appreciate it when we as Christians can disagree and do so with respect. Too often, even Christians are unable to politely agree to disagree.
The point of this article was not about whether taxing the rich more is a good or bad thing. It was about how this measure will affect charities. And it is expected to be bad. I’m guessing that you and I were brought up with a tradition of giving regularly. And we would likely continue to give (tithe) even if all tax breaks were take away. That’s not the case with many large donors. The amounts they give are somewhat driven by tax incentives. It still costs them to give, but the tax incentives encourage them to give more. This legislation will cause them to give less. A lot less, IMO. If the government wants to tax the wealthy more they should just do that. Instead they are taking an action that will very likely cause the wealthy to be less generous. And I believe that is very unfortunate.
While not the point of my article, since you touch on it, overall, the wealthy actually pay far more than their fair share of Canada’s tax burden. According to the latest figures I’ve seen, the top 20% earners,pay 61% of the total tax buden. That means that 80% of Canadians only pay 39% of the total tax. Frankly, that’s what doesn’t seem fair to me.
Dear Arnold,
Thank you for your comment and yes we always want to be respectful of each other. Yes I do believe in tithing and work for a charity in there legacy department and I have found that many of their partners would give to that charity even if they did not get a charitable receipt.
The unfortunate fact is that we do not have a proper taxation system here in Canada because we are having billionaires. Our prime minister is building up debt and not taxing the rich people appropriately to help lower this horrible debt that will strangle Canada in the future and restrict our grand children’s lives. Warren Buffet has disclosed his tax return and has stated that there is not a proper taxation system in the USA and he has a lower average tax rate than his secretary. The Netflix show “Inequality for all” goes into detail on this from an American point of view which I know does not totally apply to Canadians but shows the problem very clearly. In Canada we have a similiar problem because we copy the USA in many ways.
Lets hypnotically say that high net worth Canadian who is in the highest income tax bracket donates $ 1,000,000 to charity in securities and lets say they are a resident of Alberta.
Because of the special rules for donating securities that person avoids having to pay income tax on the capital gains at the highest income tax rate.
$ 1,000,000 divided by 2 times 33% is = $ 165,000 federal
$ 1,000,000 divided b y 2 times 15 % is = $ 75,000 Alberta income taxes
Than that person will get a charitable receipt for the Fair Market Value of his shares from the charities that he he gave the money to.
This charitable receipt is worth 32% federal ignoring the lower rate because he has other donations and assuming his other income is over $ 322,171.
$ 320,000
The Alberta rate of 21% applies and so this person will get another $ 210,000 income tax credit.
If we add all this up we come up with $ 770,000 in income tax compensation which means a rate of return 77% on his million dollar donations.
Do you believe that getting 77% percent return on your donations is a fair way to go? I am not trying to argue that the donation rule of securities is bad it is actually very advantages to charities however I just want to point out the numbers here to show what is actually going on with super rich people who can do this. It is an extremely advantage deal to rich people and the new AMT rules lower the calculation for the donations that person does to 50% I believe is a fair way to go. The extra tax they will pay is not permanent but if in future years that super rich person has a lower income some of the AMT that they paid will be refunded.
Your comment of 20% of owners pay 61% of taxes is not an unfair way to go if they have the means to pay the taxes. Extreme rich people are not able to spend all their money. An extreme rich person can only have so many fancy meals, homes, sailboats, cars, vacation etc. It has been clearly demonstrated that rich people actually are a determent to economic grows in the sense that they are not able to spend their money and have to invest it. Warren Buffet does not like fancy meals and bought himself a Cadillac. He could have bought himself any fancy car if he wanted to and could have paid cash for it. Most super rich people do not do that.
The people that actually help the economy the most are the welfare people because they spend all their money and create jobs everywhere.
Super Rich people do not create jobs because they invest all their money and are unable to spend it all.
Hi Again Gunther,
I appreciate that you want everyone to pay their fair share. I guess it’s a question of what is a fair share. In BC the highest income earners already pay 53.5% of their income in taxes. That’s more than half that goes to the government. More than a fair share IMO.
There are a few exceptions but they are few. If dividends are earned, the corporation has already paid tax on those earnings, so to prevent double taxation, a break is given to the dividend earner. If capital gains are earned, the taxation is half, in order to encourage investment in Canada. If donations are given, the donor doesn’t get a 77% return. Their loss is lessened. I want to be clear on that. No-one, other than the charity, benefits from making a charitable donation. It costs the donor.
Donating and appreciated securities is a brilliant thing to do. It will result in reducing the cost. But there is still a cost.
I will admit that there are some wealthy people who could do more, but all in all what I see is very different than what you see.
I don’t know about you, but all (and I really mean all) of the really wealthy people that I know, help the economy immensely. In fact they are the drivers of it.
– they create jobs
– they make gadgets that make our lives easier
– they build our homes for us
– they tend to be very generous
– they pay huge amounts of GST
– they pay huge taxes
And in many cases they struggle, work crazy hard, crazy long hours and take on risks that the average person shies away from.
Not all of them succeed. For those who do, I don’t begrudge them a high income. I don’t think any of us should. Rather we should cheer them on.
Just my opinion.