Section 7 – Investments
Alternative Minimum Tax
The AMT was designed to ensure that all individuals14 pay their fair share of taxes and to prevent an undue reduction of taxes through devices such as the purchase of tax shelters with significant deductions or the realization of large capital gains.
In preparing their income tax returns, individuals must calculate taxable income twice – once to calculate their regular tax and the other (referred to as adjusted taxable income) to determine whether they are subject to AMT. The minimum tax is then calculated by multiplying the adjusted taxable income by the rates indicated in your province’s Individuals Taxation tables. The higher of the AMT and the regular tax is payable. The additional tax the taxpayer has to pay on account of the AMT may be applied against regular tax payable in the next seven years provided he/she is not subject to AMT again.
Among the amounts that are likely to give rise to AMT are a portion of the non-taxable capital gains, the deductions related to a number of tax shelters and losses deducted by members of a limited partnership and non-active partners of a partnership, losses related to tax shelters, the stock option deduction, carrying charges related to these investments and interest charges which increase a loss on a rental property.
14 Including testamentary and inter vivos trusts. The AMT does not apply in the year of death.
This document is up to date as of August 31, 2023 and reflects the status of legislation, including proposed amendments at this date.
