Canadians receive generous tax credits for supporting charities. The federal donation tax credit is 15% on the first $200 of donations and 29% (33% to the extent income exceeds $253,414 in 2025) on amounts over and above $200. The provinces and territories also offer donation tax credits at different rates for donations below and above the $200 threshold.
Depending on the province, for donations of over $200 in a calendar year, the total federal-provincial credit can represent more than half of the gift amount.
In 2024*, the Alternative Minimum Tax rate rose to 20.5%, up from 15%, while the exemption amount rose to $173,205 from $40,000. The AMT base will also include 100% of taxpayers’ capital gains for the year, up from 80% under previous rules.
Meanwhile, the amount of the charitable donation tax credit that can be applied against the AMT is dropping to 80% from 100%. This is an improvement over the AMT changes that the government proposed in the 2023 budget that called for a 50% limit on the donation tax credit, which caused much consternation among Canadian charities in terms of how this could discourage donors from making large charitable donations.
While the increase in the donation tax credit that can be applied against AMT from 50% to 80% is welcome news for charities, there are still potential dangers in the AMT rules. While the Capital Gains Inclusion Rate for publicly traded securities that are donated in kind to charity remains zero for the purposes of a regular tax calculation, a 30% inclusion rate applies under the new AMT rules. This means that a donation of public securities with large unrealized capital gains could trigger the AMT which could result in less tax savings than before.
The good news is that corporations are not subject to AMT. Therefore, a donor with a corporation that owns appreciated securities, should consider making the donation from the corporation, rather than personally.
In addition, the corporation can not only eliminate taxable capital gain on appreciated publicly traded securities that are donated in kind but is also able to add the value of the non-taxable portion of the capital gains (which is 100% of the gains when the securities are donated in kind to a charity) to the capital dividend account (CDA) of the corporation. The CDA is a notional account that allows private corporations to pay tax-free dividends to shareholders. The non-taxable portion of capital gains and the death benefit of corporately owned life insurance policies are credited to the CDA of a corporation.
The AMT does not apply in the year of death either. Therefore, donations from an estate in the year of death can also be an effective strategy for reducing estate taxes. In addition, up to 100% of net income can be offset by donations on the terminal tax return, as opposed to the 75% limit typically in place during a person’s life.
You must do proper estate planning to ensure that you are using all the charitable donation tax credits that your estate would receive because of your bequests. In some cases, it is beneficial to increase your charitable donations during your lifetime to ensure that there would not be tax credits upon your death that exceed the taxes payable by your estate.
Other Capital Gains Tax-Free Donations
Due to their capital gains inclusion rate of zero, donations of qualifying environmentally sensitive or Canadian cultural property do not result in taxable capital gains under the AMT rules or for regular tax purposes.
The Ecological Gifts Program is administered by Environment and Climate Change Canada and allows individuals to donate land that has been certified as ecologically sensitive to qualified recipients without paying taxes on the disposition. Any unclaimed amount can be carried forward up to 10 years.
As for Canadian cultural property, you do not need to report capital gain on donations of paintings, sculptures, books, manuscripts, or other objects certified by the Canadian Cultural Property Export Review Board if you donate them to a designated institution.
*Sources:
Tax Measures: Supplementary Information | Budget 2024
Line 41700 – Minimum tax – Canada.ca
Archived – Tax Measures : Supplementary Information | Budget 2023
Tina Tehranchian, C.M., MA, CFP®, CLU®, CHFC®, CIM®, MFA-P™ (Philanthropy) is a FP Canada™ Fellow and a Senior Wealth Advisor with Assante Capital Management Ltd. in Etobicoke, Ontario. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact her at 905) 707-5220 or visit https://tinatehranchian.com to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
