Canada Alternative Minimum Tax Guide (AMT)
the Alternative Minimum Tax (AMT) in Canada. The AMT is the "parallel tax calculation" that ensures that the high-income taxpayers pay the minimum amount of the tax regardless of the deductions and the credits. The 2023 Federal Budget (effective January 1, 2024) significantly reformed the AMT — the AMT rate was increased from 15% to 20.5%, the AMT exemption was increased from $40,000 to $173,000, and the AMT base was broadened. The AMT is calculated on the "adjusted taxable income" (the "AMT base") — the regular taxable income plus the "tax preference items" (the capital gains at the 80% inclusion rate, the charitable donations at the 30% inclusion rate, the employee stock options at the 80% inclusion rate, the interest and the dividends at the full inclusion). The non-refundable tax credits are limited to 50% of the AMT (the "AMT credit limit" — the "50% AMT credit restriction"). The AMT is payable if the AMT exceeds the regular tax (the "AMT payable" — the "excess AMT"). The AMT carry-forward — the AMT paid in excess of the regular tax can be carried forward for 7 years (the "AMT carry-forward" — the "excess AMT" can be deducted from the regular tax in the future years). The provincial AMT — the Ontario, the BC, the Manitoba, the Quebec, and the other provinces have the separate AMT calculations (the "provincial AMT" — the "provincial minimum tax").
AMT Calculation (2024+)
- AMT rate: 20.5% (federal, increased from 15% in the 2023 Budget). The provincial AMT rates vary (the Ontario: 20.5%, the BC: 20.5%, the Quebec: 19%, the Alberta: 10% — the "provincial minimum tax" rate).
- AMT exemption: $173,000 (the "basic AMT exemption" — increased from $40,000). The exemption is indexed to the inflation. The AMT applies only to the taxpayers with the "adjusted taxable income" above $173,000.
- AMT base: The regular taxable income plus the "tax preference items" — the capital gains (80% inclusion for the AMT purposes — the "80% AMT inclusion"), the charitable donations (30% inclusion for the AMT purposes — the "30% AMT donation inclusion"), the employee stock options (80% inclusion), the interest and the dividends (100% inclusion), and the "deductions" (the "AMT deductions" — the "limited deductions" — the "home office expenses" and the "moving expenses" are NOT allowed in the AMT).
AMT Preferences
- Capital gains: The capital gains are included at the 80% rate in the AMT base (the "AMT capital gains inclusion rate" — the 80% for the regular AMT, compared to the 50% or the 66.67% regular inclusion rate). The $250,000 threshold (the "50% inclusion for the first $250,000") does NOT apply for the AMT — all the capital gains are included at the 80% rate.
- Charitable donations: The charitable donations are included at the 30% rate in the AMT base (the "AMT donation inclusion" — the 30% instead of the 100% for the regular tax). The donation tax credit is limited to 50% of the AMT (the "50% AMT credit limit").
- Employee stock options: The employee stock option benefit is included at the 80% rate in the AMT base (the "AMT stock option inclusion" — the 80% instead of the 50% for the regular tax).
- Interest and dividends: The interest and the dividends are included at the 100% rate in the AMT base (the "full inclusion" — the same as the regular tax).
AMT Carry-Forward & Planning
- 7-year carry-forward: The AMT paid in excess of the regular tax (the "excess AMT") can be carried forward for 7 years. In the future years (within the 7-year window), the taxpayer can deduct the "excess AMT" from the regular tax payable (the "AMT deduction" — the "AMT credit" against the regular tax).
- AMT planning: The "timing" of the capital gains and the charitable donations — the taxpayer should avoid the "large capital gains" and the "large charitable donations" in the same year (the "AMT trap" — the "capital gain + the donation" in the same year triggers the AMT). The taxpayer should "spread" the gains and the donations over the multiple years (the "AMT smoothing" — the "multi-year planning").
For the capital gains inclusion rates and the $250,000 threshold, see our Capital Gains Tax Guide →. For the charitable donations and the tax credits, see our Charitable Donations Guide →.