Mar 29, 2023
Increased taxes on wealthy Canadians likely recoverable: Tax expert
If the wealthy end up recovering Alternative Minimum Tax aren't we just pushing the problem?: Expert
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.