The Alternative Minimum Tax (AMT) is a parallel tax calculation that allows
fewer deductions, exemptions, and tax credits than under the ordinary income
tax rules, and that currently applies a flat 15-per-cent tax rate with a standard
$40,000 exemption amount instead of the usual progressive rate structure.
The taxpayer pays the AMT or regular tax, whichever is highest. Additional tax
paid as a result of the AMT can generally be carried forward for seven years and
can be credited against regular tax to the extent regular tax exceeds AMT in
those years. The AMT does not apply in the year of death.
To better target the AMT to high-income individuals, Budget 2023 proposes
several changes to its calculation. Key design features of the new AMT regime
are described in detail below. Additional details will be released later this year.
Broadening the AMT Base
A number of changes are proposed to broaden the AMT base by further
limiting tax preferences (i.e., exemptions, deductions, and credits).
Capital Gains and Stock Options
The government proposes to increase the AMT capital gains inclusion rate from
80 per cent to 100 per cent. Capital loss carry forwards and allowable business
investment losses would apply at a 50-per-cent rate.
It is also proposed that 100 per cent of the benefit associated with employee
stock options would be included in the AMT base.
Lifetime Capital Gains Exemption
Under current rules, 30 per cent of capital gains eligible for the lifetime capital
gains exemption are included in the AMT base. The government proposes to
maintain this treatment.
Donations of Publicly Listed Securities
The government proposes to include 30 per cent of capital gains on donations
of publicly listed securities in the AMT base, mirroring the AMT treatment of
capital gains eligible for the lifetime capital gains exemption. The 30-per-cent
inclusion would also apply to the full benefit associated with employee stock
options to the extent that a deduction is available because the underlying
securities are publicly listed securities that have been donated
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*The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions, a further review should be done by a qualified professional.
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