Alternative Minimum Tax (AMT) Changes in Canada: What You Need to Know 0

Posted On September 28, 2023, by Tracey Bastedo

Canada’s financial landscape is constantly evolving, and as tax professionals, it’s our duty to stay ahead of these changes to provide the best advice to our clients. One of the most significant changes to surface recently pertains to the Alternative Minimum Tax (AMT). With the 2023 budget proposing substantial adjustments to the AMT regime, it’s crucial that both taxpayers and practitioners understand the potential ramifications.

A Historical Perspective

Before we dive into the intricacies of the proposed changes, it’s essential to understand the background and purpose of the AMT. Introduced in 1986, the AMT is a parallel tax calculation system designed to ensure that high-income individuals pay a minimum amount of tax, even when they have large deductions. The essence of AMT is to strike a balance between the regular tax system and cases where certain deductions, exemptions, or credits could drastically reduce a taxpayer’s liability. The existence of AMT is not widely known, mainly because it previously affected a limited number of taxpayers.

Spotlight on the 2023 AMT Proposals

The 2023 budget’s proposed changes to the AMT regime appear to revolve around two central themes: ensuring fairness in the tax system and increasing federal revenue. At a glance, here’s what’s on the horizon:
1. Increasing Tax on Capital Gains: The new amendments may indirectly increase the taxes on capital gains. While there has been speculation about a rise in the capital gains inclusion rate for years, the AMT proposals might effectively achieve this, raising the rate from the current 50% to approximately 62%.

2. Targeting High-Income Earners and Significant Transactions: High-income earners and those experiencing a once-in-a-lifetime gain, such as from the sale of a business or vacation property, could be particularly impacted. Moreover, those contemplating large charitable donations, especially through appreciated securities, need to be cautious, as the new AMT rules might significantly affect such gestures.

3. Specifics of the Proposed Changes:

  • Rate Hike:A proposed increase in the AMT rate from 15% to 20.5%.
  • Adjustment in ‘Add Back’ Rates:Changes include capital gains (other than those eligible for the lifetime capital gains exemption) from 80% to 100%, employee stock option benefits from 80% to 100%, and donations of publicly listed securities from 0% to 30%.
  • Limitations on Deductions:Deductions related to non-capital loss carryforwards, capital loss carryforwards, allowable business investment losses, and deductions of limited partnership losses of other years are set to be limited further.
  • AMT Exemption Increase: The exemption for individuals is proposed to increase from $40,000 to approximately $173,000 in 2024, aligning with the 4th Federal Tax Bracket.

Case in Point: The Capital Gains Scenario

For a more tangible understanding, consider a taxpayer in the highest federal tax bracket. Under the proposed 2024 rules, they would experience a 4 percentage point increase in the federal capital gains rate. Coupled with provincial AMT changes, the overall increase could range between 5-6 percentage points. This is a notable shift, especially for those contemplating significant capital gains transactions in the near future.

Planning Ahead

While these changes are slated for 2024, the lack of draft legislation as of mid-2023 means taxpayers should approach capital gains decisions with caution. Those contemplating major transactions, such as selling their business, stock options, or making significant charitable donations, should engage in thorough planning, taking these proposed AMT alterations into account.

In conclusion, the proposed changes to the AMT regime underscore the importance of staying informed and agile in the dynamic world of tax planning. As we await further clarity and legislative drafts, it’s imperative to approach financial decisions with a keen awareness of these potential shifts. As always, our firm remains committed to guiding our clients through these complex terrains, ensuring optimized tax strategies in the face of evolving rules.

Disclaimer: This blog post is intended for general informational purposes only and does not constitute financial advice. Always consult with a financial advisor or your bank before making any decisions.


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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

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