There are two changes to the Tax Act to be on the lookout for.
The first relates to changes to the Alternative Minimum Tax (AMT) regime and the second relates to new filing requirements for certain joint accounts and/or joint ownership of property.
Alternative minimum tax changes
One of the more significant impacts of the changes to the AMT system arises if you donate to charity using in-kind donations of stock or other investments.
Essentially, AMT imposes a minimum level of tax on taxpayers who claim certain deductions, exemptions or credits thereby significantly reducing their taxes owing.
Using an alternative tax calculation, that provides for fewer deductions, exemptions and credits than under the regular income tax calculation, a minimum tax is calculated. If the amount of tax calculated using the AMT approach is greater than the regular tax calculation, the difference is payable as AMT.
Prior to 2024, donation credits could be applied against any AMT balances. Now, only 50 per cent of the donation credit will be allowed to offset AMT. Where an individual may have donated an investment with significant embedded capital gains, the gains are excluded from tax under the regular tax calculation.
However, under the new AMT calculation, 30% of capital gains on donated securities will be included. With higher inclusions and lower offsetting tax credits, there is the potential for increased AMT for some high-income donors, earning in excess of $173,000, the income level at which AMT arises.
Trust reporting updates
In an effort to curb tax-evasion and increase the transparency of trusts, the CRA introduced new tax-filing requirements, notably the need to file a T3 Trust Income Tax and Information Return that will now apply to previously exempted trusts.
The new rules are expected to apply to what are known as “bare trusts,” in which the trustee can only act at the direction of the beneficiary, with no independent powers or responsibility over the property.
Examples of such trusts would be adult children whose names have been added to their elderly parents’ bank or investments accounts. The new rules might entail a filing obligation for those who’ve had their names added to said accounts.
While the T3 Returns are not particularly complex to complete and it is primarily information disclosures that are required, the penalties for failing to comply with the rules can be hefty.
The returns, that are due April 2, 2024, come with a $25 per day late filing penalty up to a maximum of $2500 and additional penalties for knowingly failing to file or for gross negligence can be up to 5 per cent of the highest value of the property held in the trust in the year.
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This article is supplied by Joelle Hall of Hall Wealth Counsel, Wealth Advisor, Portfolio Manager, and Investment Advisor with Richardson Wealth.
Hall Wealth Counsel specialize in tax-efficient portfolios and planning. We speak your language, so you feel confident in the plan we implement together. www.HallWealthCounsel.com
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