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Year-End Charitable Donations: Navigating Tax Implications and AMT Changes

As we approach the end of the year, family-owned businesses and high-income individuals must understand the tax implications of charitable donations, especially with the impending changes to the Alternative Minimum Tax (AMT) regime. As a CPA and Tax Lawyer, I’d like to offer some key insights and strategies for making the most of your charitable contributions before the year ends.

Key Takeaways for Making Charitable Donations

  1. Deadline for 2023 Tax Receipt: To claim a tax receipt for 2023, ensure your charitable donations are made by December 31.
  2. Donating Public Securities: If you plan to donate publicly listed securities, it’s advisable to do so well before the year-end. This allows sufficient time for the charity to process the sale of the shares.
  3. Large Donations and AMT Considerations: For those considering large donations, it may be beneficial to do so before 2024 due to the proposed changes in the AMT.

Understanding the Donation Tax Credit

The federal donation tax credit in Canada is structured to provide 15% credit on the first $200 of donations, and 29% (or 33% for incomes exceeding $235,675 in 2023) on amounts above $200. Provincial and territorial credits vary, but when combined with the federal credit, the total can represent over half the donated amount, once your annual donations exceed $200.

The Impact of Donating Public Securities

Donating publicly listed securities offers a dual benefit: a tax credit based on the value of the shares at the time of donation, and an exemption from tax on any capital gains realized from the disposition of these shares. However, timing is critical, as charities need time to arrange the sale of these securities.

Implications of the Proposed AMT Changes

The proposed changes to the AMT, effective from 2024, are particularly noteworthy. They stipulate that only half of the donation tax credit can be applied against the AMT, a reduction from the current 100%. Furthermore, 30% of capital gains from donated publicly listed securities will be included in the adjusted taxable income for AMT purposes. This change could significantly affect the tax benefits of making large charitable donations, especially for those subject to AMT.

My Recommendations

For those who are philanthropic and concerned about the impending AMT changes, it would be prudent to consider making your donations before the end of 2023. This strategy ensures that you maximize the current tax benefits associated with charitable giving. Family-owned businesses, often significant contributors to charitable causes, should particularly heed this advice to maintain their philanthropic impact while optimizing tax efficiencies.

How Shajani CPA Can Help

At Shajani CPA, we are committed to helping family-owned businesses and high-income individuals navigate the complexities of tax planning, including charitable giving and AMT implications. Our expertise can provide you with tailored strategies that align with your philanthropic goals and tax planning needs.

As the year draws to a close, now is the time to act to ensure that your charitable contributions are as impactful and tax-efficient as possible. Reach out to us for personalized advice and support in this area.

For more information see List of Charities and Other Qualified Donees, or schedule a meeting with the tax professionals at Shajani CPA.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2023 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.

Nizam Shajani, Partner, LLM, CPA, CA, TEP, MBA

I enjoy formulating plans that help my clients meet their objectives. It's this sense of pride in service that facilitates client success which forms the culture of Shajani CPA.

Shajani Professional Accountants has offices in Calgary, Edmonton and Red Deer, Alberta. We’re here to support you in all of your personal and business tax and other accounting needs.