Alternative Minimum Tax

Alternative minimum tax (AMT) ensures that individuals who use large deductions, exemptions or credits pay at least a minimum level of tax. It is a parallel calculation on Form T691: if AMT is higher than regular tax, the difference is payable, but it can be recovered in later years.

HOW AMT IS CALCULATED (2024 AND LATER RULES)

Start with taxable income and add back preference items to get adjusted taxable income.
Subtract the AMT exemption: equal to the start of the fourth federal bracket, which is $181,440 for 2026.
Multiply by the AMT rate of 20.5 percent.
Subtract certain non-refundable credits, but only 50 percent of most credits (the basic personal amount and some others are allowed in full).
Compare with regular federal tax; pay the higher amount.
Provinces impose their own AMT (Ontario's is a percentage of federal AMT).

MAIN PREFERENCE ITEMS

100 percent of capital gains (instead of 50 percent), except 30 percent for gains eligible for the lifetime capital gains exemption.
30 percent of capital gains on donated publicly listed securities.
100 percent of employee stock option benefits.
Only 50 percent of interest and carrying charges to earn property income, and of many other deductions.
Only 80 percent of the charitable donation credit allowed.
Losses from tax shelters and rental properties created by capital cost allowance.

EXEMPT

The year of death (no AMT on the final return).
Most trusts for the disabled and graduated rate estates.

AMT CARRYOVER

AMT paid can be carried forward seven years and credited against regular tax to the extent regular tax exceeds AMT in those years.

WHO IS AFFECTED

Mainly individuals with very large capital gains in one year, large employee stock option benefits, or large donations of appreciated property. Most middle-income taxpayers are unaffected because of the high exemption.

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