The Conference for Advanced Life Underwriting (CALU) has several concerns about proposals made in the 2023 federal budget to modify the application of the Alternative Minimum Tax (AMT), narrowing its application to high-income Canadians.
“In the 2022 federal budget, the federal government proposed to review the taxation of high-income earners to ensure that they pay their fair share of tax,” the submission to the Department of Finance reads. “Finance Canada reported that among individuals with gross income over $400,000 and who filed a tax return in 2019, an average of 28 per cent were only paying federal income tax at an effective rate of less than 15 per cent and approximately 10 per cent of those individuals paid federal income taxes at an effective rate of five per cent or less.”
In the 2023 federal budget, proposed changes increase the AMT rate to 20.5 per cent, up from 15 per cent. Deduction calculation changes were included, as were increases to the capital gains inclusion rate from 80 per cent to 100 per cent. The budget’s proposed modifications to the rule also decreases the deduction permitted for capital loss carry forwards and allowable business investment losses. Other changes include those to capture the benefit associated with employee stock options and disallows a variety of deductions, as well.
The submission from CALU states the association’s concerns, namely that the changes could adversely affect taxpayers who experience a large, one-time income event, and provides a detailed case study example. “This situation can arise with some frequency for farmers, fishers and small business owners who have built up the value of the business over their lifetime, which is then monetized as part of their retirement planning,” the submission states. It also says that trusts should also be entitled to use the deductions available to individual taxpayers.
“While CALU is generally supportive of the stated intent of narrowing the application of the AMT to high-income Canadians, we have concerns relating to the application of these changes to certain individual taxpayers and trusts and believe our recommendations will help manage these concerns while meeting the government’s stated goals in amending the AMT rules,” they conclude.
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