Alternative Minimum Tax: Changes From 2024

Starting in 2024, the AMT calculation will be significantly modified to better target high-income taxpayers.

The Alternative Minimum Tax (AMT) rate will be raised from 15% to 20.5% and the basic exemption will increase from $40,000 to approximately $173,000. In addition, the taxable income base used to calculate the AMT will be broadened. Québec will harmonize with these measures, using similar rate and exemption parameters.

These changes will impact high-income taxpayers, particularly individuals (and trusts) who realize a significant capital gain, especially one that is not eligible for the capital gains deduction (CGD).

Example: An individual who receives a salary of $150,000 and dividends of $100,000 and realizes a capital gain of $3 million on which a CGE of $971,000 is claimed in 2023 would not have to pay an AMT. That same individual would have to pay just over $100,000 in AMT under the new parameters, as of 2024.

An entrepreneur who sells his shares at the end of his career could end up paying a large AMT, with no possibility of recovering it if he has no other source of income after retirement, such as salary or RRSP withdrawals.

Since only 50% of non-refundable tax credits (including the charitable donation tax credit) will now reduce the AMT, these changes will affect taxpayers who make large donations. Individuals who receive a significant taxable benefit in connection with the exercise of stock options may also be affected, as such a benefit will now be considered 100% for AMT purposes (with no deduction).

AMT in brief

The AMT aims to ensure that all individuals (including trusts) pay their fair share of tax. It is a parallel calculation to regular tax that allows fewer deductions, exemptions and tax credits than the ordinary rules.

When filing their tax return, individuals must pay either the AMT or regular tax, whichever is higher. The additional tax thus payable in one year can be recovered over the following seven years, to the extent that the regular tax exceeds the AMT in those years.

Estimate the impact and plan ahead!

Some transactions scheduled for early 2024 may have to be brought forward or spread over 2023 and 2024 to limit the impact of these changes.

Consult your tax advisor to discuss these measures and assess their impact.