2023 Canadian Tax Reform: Understanding the Changes to Canada’s Alternative Minimum Tax (AMT) and Budget Measures

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The Department of Finance Canada has proposed updates to the Alternative Minimum Tax (AMT) for high-income individuals as part of the Budget 2023 consultation. These changes are effective January 1, 2024. AMT is in place to ensure that individuals with high gross income, who would otherwise pay little or no income tax because of deductions, exemptions and credits, pay at least a minimum amount of tax for the year.

Alternative Minimum Tax (AMT) Overhaul: Key Changes

Some of the significant proposed changes to the AMT include:

  • Basic Exemption: The basic AMT exemption is changing from $40,000 to $173,205.
  • Tax rate: The flat federal minimum tax rate is increasing from 15% to 20.5%.
  • Capital Gains Inclusion Rate: The AMT capital gains inclusion rate is going from 80% to 100%. As well, offsetting allowable business investment losses are being reduced from 80% to 50%.
  • Donated Property Exception Removed: The exception for capital gains on donated property to qualified recipients is eliminated. Now, 100% of those gains, except for publicly listed securities which have a 30% inclusion rate, will contribute to the AMT base.
  • Deduction Limitations: Certain deductions, such as moving expenses, childcare expenses, specific employment expenses, and carrying charges, are reduced by 50%.
  • Capital Gains Deduction Adjustments: The amount of any capital gains deduction claimed is grossed up to maintain the 30% inclusion rate for capital gains on property eligible for the lifetime capital gains exemption.
  • Limitations on Loss Carryforwards: Non-capital loss carryforwards are limited to 50% of the amount, and capital loss carryforwards are restricted to the deductible amount.
  • Tax Credits Restriction: Only 50% of non-refundable tax credits can be used to reduce the AMT, with certain exceptions. This includes the personal tax credit amounts and likely the tax credit that could have the biggest impact, the donation tax credit.

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To learn more about how KWB can help you simplify your accounting, improve your profit, and achieve your goals, book an introductory meeting here!

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