A. INTRODUCTION
FINANCE MINISTER CHRYSTIA FREELAND tabled the eighth budget of the Liberal federal government ("Budget 2024") on April 16, 2024.1 Budget 2024 is comprised of eight chapters and three annexes, with the relevant proposed tax measures being summarized in "Tax Measures: Supplementary Information" that includes a Notice of Ways and Means Motion to Amend the Income Tax Act ("ITA") setting out the specific proposed amendments to the ITA.
This Charity & NFP Law Bulletin provides a brief summary and commentary on relevant provisions proposed in Budget 2024 that impact the charitable and not-for-profit ("NFP") sector. Budget 2024 includes a number of legislative proposals that will directly affect charities and NFPs, including a degree of relief to the Alternative Minimum Tax involving gifts to charities, as well as "improv[ing] the operations of the rules related to registered charities and other qualified donees" concerning the requirements to be a registered foreign charity, communication and services to charities, and donation receipts, as well as expanding the powers of the Canada Revenue Agency ("CRA"). In addition, Budget 2024 includes an announcement that legislative amendments will be made to expand the capabilities of the federal government to share information in order to combat money laundering and terrorist financing. Finally, of note, Budget 2024 includes program funding initiatives and grants of interest to the charity and NFP sector, including affordable housing, post-secondary institutions, community organizations, and not-for-profit child care.
B. PARTIAL RELIEF TO ALTERNATIVE MINIMUM TAX FOR DONATIONS TO CHARITIES
In August 2023, the Department of Finance proposed draft legislative changes to the Alternative Minimum Tax ("AMT") rules, which are aimed at certain high-income individuals, estates and trusts. The proposed changes to the AMT regime included raising the basic exemption amount from $40,000 to $173,000 and increasing the minimum tax rate from 15% to 20.5%, so that taxpayers subject to the AMT would pay more taxes.
The proposed changes to the AMT would also have significantly reduced the tax benefits available to taxpayers who make donations of publicly listed securities to charities. Prior to the proposed changes announced in August 2023, donors subject to the AMT did not have to pay any taxable capital gains on donations of publicly listed securities and would have been entitled to a donation tax credit for the full value of the gifted shares. Under the proposed AMT changes, however, taxpayers subject to the AMT would have been restricted to claiming only 50% of the charitable donation tax credit and, instead of such donations being free of capital gains, donors would have had to include 30% of capital gains in the calculation of AMT.
Following the release of the proposed legislation in August 2023, many stakeholders expressed concern that since these changes to the AMT would significantly reduce the tax benefits of donating publicly listed securities and capital property to charities, they would be a disincentive to donors making such donations, to the detriment of the entire charitable sector.
In response to those concerns, Budget 2024 partially relieves some of the concerns related to the previously proposed AMT changes by allowing taxpayers subject to the AMT to claim 80% of the charitable donation tax credit when calculating the AMT, instead of the previously proposed limit of 50%.
However, the Budget provides no relief on the inclusion of 30% of capital gains on donations of publicly traded shares.
Budget 2024 also provides an exemption from the AMT for certain trusts established under federal or provincial law for the benefit of an Indigenous group, community or people that holds rights recognized and affirmed under section 35 of the Constitution Act (hereinafter an "Indigenous Group") or established under a treaty or settlement agreement between Canada or a province and an Indigenous Group, provided that all or substantially all of the contributions to the trust made before the end of the year are paid under the law, treaty, or settlement agreement or are reasonably traceable to those amounts.
Other trusts may also be exempted from the AMT where the beneficiaries are any combination of the following:
- all of the members of an Indigenous Group;
- a public body performing a function of government in Canada (within the meaning of the ITA) in relation to an Indigenous Group;
- a registered charity or a non-profit organization that is organized and operated primarily for health, education, social welfare, or community improvement for the benefit of the members of an Indigenous Group;
- a corporation, all of the shares or capital of which are owned by any combination of persons or entities described in paragraph (b) or (c) above, a Settlement Trust, or another corporation meeting this definition; or;
- a Settlement Trust.
The AMT amendments would apply to taxation years that begin on or after January 1, 2024.
The government is interested in stakeholders' views on these proposed exemptions for Indigenous settlement and community trusts. Interested parties are invited to send written representations to the Department of Finance Canada, Tax Policy Branch at consultation.legislation@fin.gc.ca by June 28, 2024.
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* Terrance S. Carter, BA, LLB, TEP, Trade-Mark Agent, is the managing partner of Carters, and counsel to Fasken on charitable matters. Sean S. Carter, BA, LLB, is a partner at Carters practicing general civil, commercial and charity related litigation from the Toronto office of Carters. Urshita Grover, BSc (Hons), JD is an associate at Carters practicing charity and not-for-profit law. Theresa L.M. Man, BSc, MMus, LLB, LLM, is a partner at Carters who practices exclusively in charity and not-for-profit law. Ryan M. Prendergast, BA, LLB, is a partner at Carters practicing exclusively in charity and not-for-profit law. Esther Shainblum, BA, LLB, LLM, CRM, is a partner at Carters practicing in charity and not-for-profit law, privacy law and health law. Cameron A. Axford, BA (Hons), JD is an associate at Carters whose practice focuses on Carters' knowledge management, research, and publications division. Martin U. Wissmath, BA, JD, is an associate at Carters practicing corporate law, employment law, privacy law and data protection law, as well as the developing fields of social enterprise and social finance. The authors would like to thank Adriel N. Clayton, BA (Hons), JD, partner at Carters, for his assistance in preparing this Bulletin.
Footnote
1 "Budget 2024: Fairness for every generation" (16 April 2024), online: Government of Canada: https://budget.canada.ca/2024/reportrapport/toc-tdm-en.html.
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