The Alternative Minimum Tax (AMT): How It Works and What You Need to Know

What is the Alternative Minimum Tax in Canada? 

Let’s face it: Our income tax system is complicated. There are lots of rules and exceptions, and a huge list of deductions and credits you can use to lower your tax bill. Plus, if you earn money from capital gains or dividends, the income tax you pay on that amount is calculated differently than when you earn wages or a salary.

If you fall into a certain category of investment income earners, which in turn allows you to claim certain related deductions and tax credits, you may have to calculate the alternative minimum tax on Form T691 in your tax return. If your total related income is $40,000 or more you may have to pay minimum tax.

Essentially, if you think you might be in this situation, you calculate your tax twice (lucky you!): the standard way, and the AMT way. The higher number is the one you pay for that year. Read on to learn about how AMT is calculated.

What triggers the AMT?

Most Canadians don’t have to worry about the AMT, and don’t even know it exists. Sounds blissful, right? It’s really designed for special situations in which you have a decent income but are able to lower your tax bill substantially—even to zero—due to various exemptions, deductions, credits, and other tax-saving tools.

Note that the AMT would not be triggered with the reporting of a taxable capital gain, however, it may be triggered if this capital gain results from the sale of a qualifying property, such as Qualifying Small Business corporation shares, or farm or fishing property, where the seller may claim a capital gains deduction on that sale.

What are the AMT rules?

If you think you might be subject to the AMT, it’s a good idea to understand how it works. Knowledge is power! Here are some things you should know.

How do I calculate the AMT?

As of 2024, a quick AMT calculation is tougher: for AMT, 100% of your capital gains (line 12700) are included in the AMT base, and the basic exemption equals the start of the 4th federal bracket (e.g., $173,205 for 2024, $177,882 for 2025). If your AMT base exceeds the exemption, AMT may apply—calculate it on Form T691.

If the total of these amounts is $40,000 or less, you probably don’t have to pay the AMT. But if it’s more than $40,000, ding-ding! You’ve won extra paperwork, aka Form T691 (see link above).

From 2024 onward, AMT is calculated at 20.5% on AMT income above the basic exemption (the start of the 4th federal bracket; $173,205 for 2024, $177,882 for 2025, indexed).

How do capital gains affect the AMT?

When you sell capital property such as stocks or real estate for a profit, the amount you earned is a capital gain. Typically, you pay tax on 50% of that amount. For example, if your capital gain is $50,000, you would add $25,000 to your taxable income.

There’s also something called the lifetime capital gains exemption, which reduces your tax payable when you sell eligible shares in a small business corporation or farm or fishing property. This amount goes up every year and is quite substantial—in 2022, for instance, it was $913,630 for small business shares and $1,000,000 for fishing and farm property. Nice gig if you can get it.

Under the AMT, you may have to pay some or all of the taxes that would be due without the deduction or exemption. Even though you may be able to recoup those taxes in future years (see “Does AMT get carried forward?” below), it can be a surprising tax hit in a year in which you have a lot of capital gains.

Does the AMT get carried forward?

If you end up having to pay the AMT, there is an opportunity to recover some of that money in future tax years. Essentially, you can carry forward the difference between the AMT and your regular tax liability for seven years, or until you use it up. It counts as a credit, but only against regular tax payable, not against future years’ AMT. You can claim this credit using Form T691.

Can I avoid the AMT?

To avoid the AMT, you need to make it lower than your tax payable under the standard system. For instance, if you have RRSP deductions, you might decide to save them for a rainy day—ahem, future years—to increase your tax payable and avoid the AMT.

What are the new AMT rules for 2024?

When the federal government released the 2024 budget, it announced that there would be changes to how the AMT is calculated. These AMT changes are now in force for tax years beginning after 2023: AMT rate 20.5%; basic exemption set to the 4th bracket threshold (indexed); and 100% of capital gains included in the AMT base. Note: the regular (non-AMT) capital-gains inclusion-rate increase announced in Budget 2024 was deferred to Jan 1, 2026 and later cancelled in March 2025; the regular inclusion rate remains 1/2 for individuals.

Should I get more guidance with the AMT?

The AMT isn’t that hard to understand—but organizing your taxes so you get the best outcome can be a challenge. The most important thing to remember is that if you think you’re going to trigger the AMT, it’s probably worth getting help with your taxes.