Federal budget 2023: Highest-earning 

Canadians face minimum tax rate increase

Craig Wong, The Canadian Press

The federal government is moving to raise the minimum tax rate paid by wealthy Canadians in the budget and narrowing its focus on the highest earners.

In its budget Tuesday, Ottawa is raising the alternative minimum tax rate and imposing new limits on many of the exemptions, deductions and credits that apply under the system starting in 2024.

“We’re making sure the very wealthy and our biggest corporations pay their fair share of taxes, so we can afford to keep taxes low for middle class families,” Finance Minister Chrystia Freeland said in the prepared text of her remarks.

The alternative minimum tax (AMT) introduced in 1986 is a parallel income tax calculation that allows fewer deductions, exemptions and tax credits than the ordinary tax rules for the country’s highest earners. Wealthy Canadians pay the alternative minimum or regular tax, whichever is higher.

The government announced in the budget that it is increasing the alternative minimum rate to 20.5 per cent from 15 per cent starting in 2024.

To help ensure lower- and middle-income Canadians don’t get caught up in the increase, Ottawa is also proposing to increase the exemption to the start of the fourth federal tax bracket from $40,000. For 2024, it expects the exemption would be about $173,000 and be indexed annually to inflation. 

The government estimates that under the new rules about 32,000 Canadians will be covered by alternative minimum tax in 2024, compared with about 70,000 if it did not make the changes. 

However, the higher rate and revamping of the allowable deductions and credits mean Ottawa expects to take in an additional $150 million in 2023-24 and an additional $625 million in 2024-25.

Bruce Ball, vice-president for tax at CPA Canada, said there is a broader range of things that will go into the alternative minimum tax calculation, but the good news for most taxpayers is that the threshold will be much higher.

“That should exclude a lot of people even if they have more add-backs than they would have under the old system, so there’s some good news and bad news I guess, depending on your situation,” Ball said.

“If you’re higher income you may end up paying more; if you’re lower income you may not be subject to AMT.”

Brian Ernewein, senior advisor, tax, at KPMG in Canada, said the government isn’t just raising the rate, but also changing the rules for what is included when calculating a tax bill under the AMT rules, including changes for the treatment of capital gains. 

“I think this is a very big change,” he said. 

Ernewein added that there are also a broad range of changes regarding exemptions, deductions and credits.

"They're only allowing 50 per cent of a fairly large range of deductions and expenses, and 50 per cent of a lot of non refundable personal tax credits," he said.

While the richest Canadians face the possibility of higher taxes, the budget also includes a one-time payment for those who receive the goods and services tax credit to help offset the rising cost of living.

“We all know that our most vulnerable friends and neighbours are still feeling the bite of higher prices. And that is why our budget delivers targeted inflation relieve to those who need it most,” Freeland said.

Under the proposal, billed as a grocery rebate, Canadians who are eligible will receive an additional amount equal to twice the GST tax credit amount for January. For couples with two children the amount could be up to $467, while a single Canadian without children could receive up to an extra $234.

Student budgets will also see a boost from the budget as the government increases the Canada Student Grants compared with pre-pandemic levels and raises the interest-free Canada Student Loan limit.

The changes increase the total federal aid available to a full-time student based on financial need to $14,400 for 2023, up from $13,160 for 2022 and $10,140 in 2019 before the pandemic.

The government is also moving to cap the increase on alcohol excise duties to two per cent for one year. Ordinarily, the rates are indexed to the consumer price index and were previously set to rise by 6.3 per cent.

However, Canadians looking to take a flight next year will face an increase in the air travellers security charge paid by those flying in Canada starting on May 1, 2024. The charges, which are paid by passengers when they buy an airline ticket, help pay for the air travel security system and were last increased in 2010.

The charge for a domestic round trip will rise to $19.87, from its current rate of $14.96.  The charge for a transborder flight to the U.S. will rise to $16.89 from $12.71, while for departing international flights travellers will pay $34.42, up from $25.91.

This report by The Canadian Press was first published March 28, 2023.

Increased taxes on wealthy Canadians likely recoverable: Tax expert

Daniel Johnson , BNN Bloomberg

Following a proposed move by Canada’s federal government to increase the minimum tax rate on wealthy individuals, one tax expert said the minimum tax is often recoverable. 

The increase to the alternative minimum tax rate on wealthy Canadians was announced Tuesday as part of the 2023 federal budget. The increase is expected to take effect in 2024 and will bring the alternative minimum tax rate from 15 per cent to 20.5 per cent. 

“The good news, however, is that in almost every case, the minimum tax is really just a prepayment. It is recoverable, there is a seven-year carry forward to the extent that your ordinary tax exceeds minimum tax in a future year,” Jamie Golombek, the managing director of tax and estate planning at CIBC Private Wealth Management, said in a television interview Tuesday. 

In its current form, minimum tax places limits on potential tax advantages an individual can receive from incentives, according to Canada Revenue Agency. A minimum tax applies if it is higher than the federal tax an individual would pay when calculated in the typical way.

The proposed updates to the alternative minimum tax are expected to produce around $3 billion in additional government revenue over five years, according to Golombek. 

“The question I would pose to the government is, is this real revenue or is just a timing difference?” Golombek said. 

“Because if most people end up recovering their minimum tax over a seven-year period, are we just pushing the problem out seven years? Or is this a real permanent savings or a tax revenue grab for the government.” 

The increases to the tax regulations really only apply to “high-income Canadians,” Golombek said, adding that unless your income is more than $300,000, the changes are unlikely to have an impact. 

“The government budget documents specifically said that 99 per cent of the estimated billions of dollars of new revenue that this will bring in over the next five years, will be brought in by the people earning over $300,000 [annually] with 80 per cent of it earned by the people [with an income] over a million dollars,” Golombek said. 

The amendments to Canada’s tax regulations will not only apply to salaried individuals but will also apply to things like capital gains, according to Golombek.