1986 was one of those years that we tend to either remember fondly or want to forget. And what a year it was! If you close your eyes and think all the way back to then, you can probably hear Cyndi Lauper’s “True Colours” playing in the background on the radio. Imagine running your fingers through your really, really big hair. Maybe you caught a Glass Tiger concert, and sang about the “Someday” that you are now living?
I had a mullet.
I’m not particularly proud of that mullet, but my mom thought it would make me look cool. That probably should have been my first clue that it was not a particularly great idea! But, like many people in 1986, we all made interesting life decisions.
The excess and silliness of the year was balanced by some terrible events – including the destruction of the space shuttle Challenger as well as the Chernobyl accident. It has been, believe it or not, 37 years this week since the world’s worst nuclear power incident led to the evacuation of the city.
Remembering history, it turns out, is very important, because sometimes it comes back to haunt us. Arguably largely forgotten by the news cycle, Chernobyl once again recently became a news topic with the Russian invasion of Ukraine last year. Reportedly, Russian soldiers travelled and dug fortifications in the affected area, without any precautions, and suffered radiation poisoning as a result.
We’re blessed in Canada that the ghost of 1986 has largely been confined to embarrassing fashion choices for most of us. This was true until one more invention of 1986 was raised in this year’s proposed federal budget: the Alternative Minimum Tax (AMT).
The most boring (but costly) part of 1986
Readers are far more likely to remember Brian Wilson in 1986 for the Beach Boy’s Made in USA compilation album than for Michael Wilson, who was Brian Mulroney’s first Finance Minister, and, admittedly, much less entertaining. Michael Wilson’s 1986 Federal Budget, however, was far more memorable. As part of the governments attempt to make sure high-income earners “paid their fair share”, he introduced the AMT for the first time, which could apply to Canadians who earned more than $40,000.
Without getting into the technical details, the concept of the AMT is that people (and corporations) with high income, but low taxes should be subject to a minimum tax amount. Historically, certain things were included or excluded in the list of items that are part of that calculation. Fortunately, Charitable Donations, and in particular the waived capital gains on gifts-in-kind of publicly traded securities have always been excluded from this calculation.
1986 is coming back to haunt us
This past April, our current finance Minister Chrystia Freeland delivered a new budget with profound implications for charitable giving starting in 2024. (Minister Freeland is an infinitely more interesting Finance Minister than any in the past – as a university student she spent the 1980’s being the bane of the KBG!)
In the proposed budget, starting in 2024, big changes will happen to the AMT that will affect those who support charities. On the positive front, AMT will now only apply after a threshold of $173,000 in income is reached. However, starting in 2024 for the purpose of calculating minimum tax, 30% of the capital gain from in-kind donations to charity will be included (previously 0%). To make things worse for charitable individuals, only 50% of the non-refundable tax credits – including the charitable donation credit – would be allowed to be used to offset AMT. In addition, the tax rate used to calculate minimum tax amounts would increase.
Needless to say, this proposal is (and should be!) creating a great deal of alarm in the charitable sector, as it would potentially, for some donors, make the cost of giving much higher.
I’m hopeful that CRA will listen closely to the charitable sector on the hugely negative impact the proposed budget will have on fundraising. But, until then, for higher income earners, if you are thinking about giving to charity – especially via in-kind gifts of publicly traded securities, it might be wise to talk to your tax professionals about giving in 2023, rather than waiting until 2024.
A tune for the CRA
“True Colors” was a mega hit for Cyndi Lauper in 1986, but the song we really need to be playing now is the second release from that album – “Change of Heart”. The proposed AMT changes seem to be full of excess and remind me a lot of the worst of the 80s. Much like my mullet, these changes might look like a bad idea in a few years “Time after Time”. I sure don’t want CRA to leave a “Hole in my Heart”, because for charities “Money Changes Everything”!