Alternative Minimum Tax
AMT is a parallel tax calculation that strips out preferential tax items and applies a flat rate to the broader base. The 2024 reform (Bill C-69) significantly tightened it — raising the rate, removing preferential treatments, but also raising the exemption so most middle-income earners are unaffected.
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1. The 2024 reform — what changed
- AMT rate: 20.5% (was 15%)
- Basic exemption: $177,882 for 2025 (was $40,000); indexed to fourth federal bracket
- Capital gains inclusion for AMT: 100% (was 80%)
- LCGE for AMT: only 70% recognised (was 100%)
- Charitable donation credit: only 80% recognised (was 100%)
- Stock option deduction (s. 110(1)(d)): 0% recognised (was 50%)
- Carryover: AMT paid in excess of regular tax may be carried forward 7 years and applied where regular tax exceeds AMT
2. Who triggers AMT
- Large one-off capital gains (business sale, real estate)
- Significant stock option exercises (now hit hard by 0% s. 110(1)(d) recognition)
- Large charitable donations relative to income
- Large interest expense on leveraged investment portfolios (s. 20(1)(c))
- Limited-partnership losses, resource expenditures, flow-through shares
3. Who doesn't trigger AMT
The $177,882 exemption protects most self-employed Canadians at typical income levels. AMT predominantly affects single-year spikes (business sale year, IPO year) or high earners with structured deductions.
4. Planning strategies
- Spread capital-gain triggers across years where possible
- Time charitable donations to avoid concentration in a single year
- Model stock option exercises against AMT exposure before exercise
- Use the 7-year carryover deliberately — pay AMT in a low-regular-tax year to recover later
5. Reporting
Calculated on Form T691. Required where adjusted taxable income exceeds the basic exemption.
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