The Canada Revenue Agency has announced key changes to the Alternative Minimum Tax (AMT) as a part of the 2024 Federal Budget.
What is Alternative Minimum Tax (AMT)?
The Alternative Minimum Tax (AMT) is an alternative method of tax calculation that ensures high-income individuals and trusts pay a minimum amount of tax. The AMT system was designed to increase the tax liability of individuals and trusts reporting tax preference items like capital gains and dividends. The AMT was introduced as a part of a broad range of tax changes to increase the fairness of the tax system. Under this regime, taxable income is recalculated using various deductions, exemptions and credits which are permitted under the Canada Revenue Agency’s (CRA) guidelines. Taxpayers must calculate their tax liability under the regular tax system and the AMT system. The tax filer then pays the higher liability.
Key Changes to the AMT
The 2024 Federal Budget included several key changes to the AMT to better target high-income earners. These changes were proposed under Bill C-69, and includes the following key changes;
1. Increasing the AMT Rate from 15% to 20.5%.
Notably, the alternative minimum tax rate will be increased from 15% to 20.5%. Although the previous minimum tax rate was set at 15%, many high-income Canadians still paid less than this 15% in taxes. This increase will be more effective at limiting the benefits that high-income Canadians receive from reporting tax preference items.
2. Raising the basic tax exemption amount from $40,000 to $173,205 (for 2024) and indexing it to inflation.
The AMT exemption allows Canadians to earn a certain level of income before owing additional tax. The previous exemption amount of $40,000 has not changed since the introduction of the AMT in 1986. The increase to $173,205 raises the basic exemption amount to a higher Federal tax bracket. This new amount also accounts for decades of inflation and ensures that the AMT is paid by high-income Canadians and rather than middle-class earners. In 2025, the new tax exemption rate is expected to be $177,882.
3. Additional limits on eligible deductions, credits and exemptions.
There are now several tax benefits that are restricted under the AMT, most notably;
- Only 50% of certain eligible non-refundable tax credits may be applied under the AMT.
- Deductions such as interest and carrying charges incurred to earn income from property are limited.
- Charitable donation tax credit usage has been expanded under the AMT, allowing 80% of the donation amount to be claimed, up from 50% previously.
4. Employee Ownership Trusts now fully exempt from the AMT.
Employee Ownership Trusts are now fully exempt from the AMT and are subject to certain legislative conditions and limitations.
In Summary
As of June 20, 2024, these changes were passed into law and are effective for the 2024 tax year. All changes are also subject to detailed eligibility requirements and conditions, resulting in taxpayers that were previously not subject to AMT now having to be aware of its potential application. The province of Ontario also levies AMT following the federal calculation.
At S+C Partners, we’re here to help you.
Have any questions about these changes? We’re here to answer. Our tax advisors and specialists are here to make sure there are no surprises when filing your taxes. Please give us a phone call at (905) 821-9215, or reach out to us by email, info@scpllp.com.
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