Increase could mean 15-20% charitable donation decrease in 2024, says senior PM
When the federal government tabled its budget last week and gave notice that it would raise the alternative minimum tax (AMT) rate in 2024, it caused advisors who serve ultra-high net worth clients to consider how that’s going to impact their charitable contributions once the change occurs.
“I hate to say this, but the change probably will impact the absolute size of the donations going forward,” Thane Stenner, a senior portfolio manager and senior wealth manager with Stenner Wealth Partners+ at CG Wealth Management Canada told Wealth Professional.
“I wish I could say that wouldn't really matter. The uber-wealthy have, most of the time, a very charitable profile. They tend to give a lot, as we know, but they do take into account the taxable ramifications of making larger donations. So, I'm hoping that it doesn't affect the charitable space. But being a realist, I think it will.”
Stenner Wealth Partners+ is an award-winning in-person and virtual team of wealth specialists with a boutique approach and global perspective. It services Canadian and U.S. investors and households with, generally, a minimum of $10 million+ in investable assets or $25 million+ net worth. Stenner said It has facilitated 303 charitable donations worth $113.2 million for clients in the past two years.
The federal budget indicated that the AMT would increase to 20.5% from 15%, with new limits on exemptions. Stenner said that is almost a 35% AMT increase, so he estimated that it could have a 15% to 20% impact on the total dollars that wealthy investors can donate to charitable causes.
“That’s the negative possibility,” he added. “The positive possibility could be that, maybe instead of them donating in lumpy fashions with larger amounts once in awhile, they may need to smooth out their larger donations over longer periods of time. So, in aggregation, I’m hoping that the charitable sector will still receive the same amount of dollars. But, it may be over years versus in a lumpier fashion.”
Stenner, who has chaired capital campaigns and sat on many non-profit boards, is grateful that the federal government decided to postpone this increase until 2024. He noted that the pandemic definitely slowed some donations since fund-raisers could not meet with clients in person to discuss larger ones. Zoom wasn’t as effective for courting clients to make larger donations. While he expected that the better, more efficient foundations will probably get a larger share of the donations, he is concerned the tax change could negatively impact Canadian charities.
“The uber-wealthy give, first and foremost, because of their hearts. They definitely want to be impactful in the communities,” he said. “And, when I say their hearts, they tend to give for faith reasons or for certain health or mental illness reasons - particularly if they, or their families, have been impacted in a certain area. That tends to be where they go.
“We specialize in dealing with the top 1/10th of 1% of investors in Canada. Thankfully, as you know, broadly speaking the participation rate for charitable giving has been gradually declining, but these investors have really stepped up in a meaningful way.”