The AMT changes will adversely affect charitable giving and inter vivos trusts incurring interest expense

PwC provided the following examples illustrating the impact of the harsher proposed federal AMT rules (provincial tax is not factored in):

Example 1

An individual earning ordinary income of $250,000 disposes of capital property in the year at a capital gain of $1,500,000 would compute regular federal income tax of $304,778 and federal AMT of $322,271 [the AMT inclusion rate for capital gains will increase to 100%].

Example 2

An individual earning ordinary income of $450,000 donates a capital property that is not a publicly listed security, with an ACB and FMV of $100,000 and $1,000,000 will compute regular federal income tax of $49,483 and federal AMT of $129,123 [the capital gains inclusion rate for the donated security will increase, and the donation tax credit will be limited to 50%].

Example 3

An inter-vivos trust (that is neither excluded from AMT, nor qualifies for a basic exemption amount) which borrows $1,000,000 at 1% to earn interest income at 3% and distributes the resulting net income of $20,000 to the trust beneficiaries would compute regular federal income tax of nil and federal AMT of $1,025 [50% of the interest expense deduction will be denied, an inter‑vivos trust will not generally benefit from the basic AMT exemption, and the $20,000 distribution does not fully eliminate the higher income for AMT purposes]

Neal Armstrong. Summary of PwC, “Tax Insights: Proposed changes to the alternative minimum tax ─ How will it affect individuals and trusts?” Issue 2023-31, 22 September 2023 under s. 127.52(1).