March 31, 2023
On March 28, 2023, Canada’s Finance Minister Chrystia Freeland tabled the 2023 federal budget. The theme of this year’s budget focuses on the development of clean energy and providing assistance to low and middle income families to help offset the impact of inflation.
While there were many corporate tax measures introduced, especially to incentivize the development of green energy production, the number of changes affecting individuals was minimal. In advance of the release of the budget, many speculated that the federal government was contemplating several new measures to ensure the wealthiest Canadians pay their fair share of taxes, including increasing the highest marginal tax rate, increasing the capital gains inclusion rate or reducing the dividend tax credit. None of these measures were tabled in the 2023 federal budget.
However, the budget does propose to change the Alternative Minimum Tax (“AMT”) regime in order to broaden the base of taxpayers who may be subject to AMT. These changes, which are outlined below, may impact high-income individuals, including any globally mobile employees working in Canada that fall into the relevant income categories and currently benefit from certain preferential tax exemptions, deductions and credits.
The budget also proposes rules to facilitate the creation of Employee Ownership Trusts (EOT), makes a small amendment to the Retirement Compensation Arrangement (RCA) rules and introduces a corporate tax on the repurchase of equity. Further details on these changes will be shared in an upcoming Vialto Partners Rewards update.
Summary of proposed changes to AMT for high-income individuals
1. Raising the AMT rate from 15% to 20.5%
2. Broadening the AMT base by further limiting exemptions, deductions and credits in the calculation of AMT
In addition, 50% of a number of deductions would be disallowed, including the following:
In addition, only 50% of most non-refundable tax credits will be allowed to reduce the AMT where currently most non-refundable tax credits can be fully credited against the AMT.
3. Increasing the basic AMT exemption from $40,000 to $173,000 (indexed annually to inflation) to protect the lower and middle-income individuals from the AMT.
With the proposed changes, the federal government estimates more than 99 percent of the AMT paid by individuals in Canada will be paid by those who earn more than $300,000 per year, and around 80% of the AMT would be paid by those who earn more than $1 million per year.
The proposed changes to the AMT will apply to taxation years beginning after 2023. As the AMT is specific to an individual’s personal circumstances, the impact will vary on a case-by-case basis. If you would like to understand the proposed changes or model the impact for select employees or executives, please reach out to your Vialto Partners point of contact or alternatively one of the Canada team members listed below:
For more information on the Canadian federal budget, please see this link.
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