Alternative Minimum Tax (AMT) Overview

Introduction
Understanding the alternative minimum tax overview is essential for high-income earners, investors, landlords, entrepreneurs, executives, and retirees who claim significant deductions or preferential tax treatments. AMT is a parallel tax calculation designed by CRA to ensure that individuals who use tax credits, capital gains exemptions, or large deductions still pay a minimum amount of tax. With major legislative changes effective in 2024, AMT now affects far more Canadians — especially those with stock-option benefits, large capital gains, flow-through shares, real estate dispositions, and charitable donation strategies. This guide explains exactly how AMT works, who is affected, and how to plan effectively.

Legal and Regulatory Framework
Alternative minimum tax rules are governed by the Income Tax Act, CRA administrative AMT guidelines, federal 2024 amendments to AMT calculations, provincial rules including Québec’s AMT adjustments, capital-gains legislation, stock-option rules, and donation-credit regulations. CRA requires taxpayers to compute AMT when specific preferences exist. If AMT applies, individuals must pay the higher of regular tax or AMT.

What Is AMT?
AMT is a parallel tax system. Individuals compute their tax twice:
regular tax
alternative minimum tax
AMT adds back certain deductions to calculate “adjusted taxable income.” If AMT is higher than regular tax, the taxpayer must pay AMT. Any excess AMT may be carried forward for up to 7 years to reduce future regular taxes.

2024 AMT Changes (Very Important)
The 2024 federal budget introduced major AMT reforms, including:
higher AMT inclusion rate on capital gains: 80 percent
lower AMT basic exemption: $173,000
reduced credit for charitable donations: still only 80 percent eligible
more add-backs for deductions and credits
higher AMT rate: 20.5 percent
flow-through share tax benefits restricted
stock-option deductions reduced

These changes dramatically increase the number of Canadians exposed to AMT.

Who Is Affected by AMT?
AMT generally affects taxpayers with:
large capital gains
stock-option exercises
significant dividend income
flow-through share deductions
charitable donations involving securities
interest, carrying charges, or partnership deductions
rental-loss carryforwards
trust or estate distributions
Even one-time capital events such as selling a rental property or business may trigger AMT.

Common high-risk AMT groups:
executives receiving stock options
real estate investors selling appreciated properties
individuals claiming large capital-gains inclusion exemptions
high-income retirees withdrawing large RRIF amounts
donors gifting publicly traded securities
entrepreneurs selling QSBC shares

How AMT Is Calculated (New Model)
AMT is calculated by:
starting with regular taxable income
adding back various deductions (creating adjusted taxable income)
applying AMT inclusion rules
applying a 20.5 percent AMT rate
comparing AMT to regular tax

Key AMT add-backs include:
capital gains at 80 percent (instead of 50 percent)
dividends gross-up effect
deductions for interest and carrying charges partially restricted
loss carryforwards added back
stock-option deductions restricted
85 percent limitation on charitable donation credits

AMT is designed to reduce the benefit of preferential tax rules.

Impact of AMT on Capital Gains
Under AMT, capital gains are included at 80 percent, not 50 percent.
AMT is especially triggered when:
taxpayers realize a large capital gain in a single year
donate publicly traded securities
claim reserves on capital gains
use capital gains exemptions (e.g., QSBC shares)
Large real estate sales or business sales are high-risk AMT situations.

AMT and Charitable Donations
Charitable donations previously reduced AMT significantly. Under 2024 rules:
only 80 percent of the donation credit applies
donating securities still eliminates capital gains tax in regular tax
but capital gains are still included in AMT calculations
AMT can apply even when donating large amounts in good faith.

AMT and Stock Options
Stock-option benefits are heavily scrutinized under AMT. The typical 50 percent stock-option deduction is restricted in AMT calculations. Executives exercising options in a single year may trigger substantial AMT.

AMT and Flow-Through Shares
Flow-through share deductions are now major AMT triggers. CRA adds back many of the tax benefits under AMT rules. Investors using resource-sector tax shelters must review AMT exposure before purchasing.

AMT and Real Estate Sales
Real estate sales often generate large capital gains, which can trigger AMT, especially when:
a rental property is sold
a secondary residence is disposed
vacation properties are sold
capital losses are limited
Real estate investors must plan capital events ahead of year-end.

Québec AMT Rules
Québec applies its own AMT rules in addition to federal AMT. Québec AMT is triggered by:
large capital gains
deductions from partnerships
significant interest expenses
stock-option benefits
charitable donations
Québec requires parallel AMT calculations under TP-1. Many Québec taxpayers pay AMT provincially even if they avoid federal AMT.

AMT Carryforward Rules
AMT paid can be used as a credit against regular tax for up to 7 years, but only if future regular tax exceeds AMT. If no future tax exists to absorb the credit, the AMT is lost.

Common Mistakes Leading to AMT
realizing large gains without planning
donating securities without AMT review
exercising stock options all in one year
using flow-through shares without AMT analysis
selling rental properties late in the year without offsetting losses
triggering capital gains inside trusts or estates
These mistakes lead to surprise AMT bills.

Key Court and CRA Positions
CRA enforces AMT strictly. Courts have upheld CRA’s right to deny large deductions when AMT applies. Cases emphasize that AMT is designed to tax high-preference income even when taxpayers follow the rules. Courts consistently confirm that AMT must be paid if calculations require it.

Why CRA and Revenu Québec Audit AMT Filers
because AMT is often triggered by:
large transactions
complex deductions
donations of securities
partnership losses
stock-option exercises
AMT scenarios usually involve high-dollar amounts, making them priority audit targets.

Mackisen Strategy
Mackisen CPA provides complete AMT planning and mitigation strategies. We analyze AMT exposure before major transactions, optimize capital-gains timing, structure stock-option exercises, plan charitable donations safely under AMT rules, test flow-through share exposure, review trust and estate AMT issues, and prepare AMT calculations for CRA and ARQ filings. We ensure clients avoid unnecessary AMT or recover AMT efficiently using carryforward planning.

Real Client Experience
A Montréal executive exercised stock options and faced a large AMT bill; Mackisen spread exercises over multiple years to reduce exposure. A real estate investor sold two properties in one year; we offset gains and avoided AMT. A high-income donor gifted securities expecting tax savings; Mackisen restructured the donation timing to avoid AMT impact. A business owner selling QSBC shares used proper planning to reduce AMT under new rules.

Common Questions
Who pays AMT? High-income individuals with deductions or large capital events.
Does Québec have its own AMT? Yes — separate calculation applies.
Can AMT be refunded? Yes, over 7 years if regular tax later exceeds AMT.
Does donating securities still help? Yes — but AMT impact must be reviewed.
Is AMT permanent? No — only applies when AMT is greater than regular tax.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadians navigate the alternative minimum tax overview, avoid costly mistakes, and plan high-value transactions safely. Our strategies minimize AMT risk, protect wealth, and optimize long-term tax results.