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Proposed Tax Overhaul in 2023 Federal Budget Affects High-Income Individuals’ Charitable Contributions

The 2023 Federal Budget and subsequently released draft legislation of August 4, 2023 propose to make several changes to the calculation of the Alternative Minimum Tax (AMT) for individuals and certain trusts. The proposed changes may significantly increase the tax cost of making donations where the taxable income of the individual exceeds the first dollar amount for the 4th income tax bracket (in 2024, that is expected to be over $173,000). The new rules are proposed to apply to taxation years that begin after December 31, 2023.

The proposed changes would, among other things, increase the AMT rate to 20.5% from 15% and only allow 50% of the tax credit claimed for donations made. Also, the inclusion rate for a capital gain arising from making a donation of certain publicly listed securities increases to 30% and to 100% for a capital gain from a donation of other capital property for purposes of calculating AMT.

The proposed changes to the AMT rules highlights the consideration of whether making a donation through a corporation makes sense in situations where the higher AMT is payable by the individual, since the AMT does not apply to corporations.

Generally, a donation made by a corporation is deductible in computing taxable income, subject to certain limitations, for purposes of computing corporate income taxes payable.

If you are considering making a donation, reach out to your SLF Advisor who may assist you with making your decision to donate and whether you should donate personally or using your corporation.