Section 127.52

Table of Contents

Section 127.52 - Minimum amount determined
Subsection 127.52(1) - Adjusted taxable income determined
See Also(1)
Administrative Policy(4)
Articles(2)
Paragraph 127.52(1)(d)
Articles(1)
Paragraph 127.52(1)(j)
Articles(1)

Subsection 127.52(1) - Adjusted taxable income determined

See Also

Peter W. Beare v. Minister of National Revenue, 91 DTC 411, [1991] 1 CTC 2471 (TCC)

The claim of the taxpayer for the capital gains deduction was limited to an amount which would result in a taxable income of nil. The same limitation also applied for purposes of the computation of adjusted taxable income under s. 127.52(1).

Administrative Policy

4 August 1992 T.I. (Tax Window, No. 23, p. 23, ¶2127)

Where an estate designates under s. 104(27.1) a lump-sum payment received from a DPSP as payable to the spouse of the deceased, and the spouse contributes that amount to an RRSP claiming a deduction under s. 60(j), RC will not view the amount so designated as being a single payment out of a DPSP for purposes of s. 127.52(1)(a)(ii)(B)(I).

10 May 1991 Memorandum (Tax Window, No. 3, p. 31, ¶1255)

Capital losses of other years should be deducted in computing adjusted taxable income irrespective whether they have been deducted by the taxpayer in computing his regular income for the year.

24 January 1991 Memorandum (Tax Window, Prelim. No. 3, p. 9, ¶1105)

Where a taxpayer claims the full deduction for which he is eligible, such amount will be considered to have been deducted for purposes of s. 127.52(1)(h) notwithstanding that a lesser deduction would have produced nil taxable income.

9 November 89 T.I. (April 90 Access Letter, ¶1183)

The adjustment in s. 127.52(1)(d) for the non-taxable portion of capital gains only applies to capital gains recognized pursuant to sections 38 and 41. Therefore, there is no corresponding adjustment for capital gain realized by a taxpayer pursuant to s. 14(1)(a)(v).

Articles

PWC, "Tax Insights: Proposed changes to the alternative minimum tax ─ How will it affect individuals and trusts?", Issue 2023-31, 22 September 2023

Adjusting the ATI calculation

The proposed changes will modify the ATI calculation by adjusting the inclusion rate for certain types of income and limiting or restricting access to certain deductions and expenses. Key changes follow:

  • The inclusion rate for capital gains, allowable capital losses and gains from listed personal property will increase to 100% (from 80%).
  • The inclusion rate for business investment losses3 will decrease to 50% (from 80%).
  • The employee stock option deduction will no longer be available; this effectively increases the inclusion rate for taxable stock option benefits to 100% (from 80%).
  • The capital gains inclusion rate on donations of:
    • publicly listed securities will increase to 30% (from 0%)
    • all other property will increase to 100% (from 50%)
  • The deduction of certain expenses will be limited to 50% of the amount otherwise deducted for the year (this includes, among others, interest and financing costs incurred to earn property income,4 moving expenses, childcare expenses and the disability supports deduction).
  • The deduction for non‑capital losses and limited partnership losses of other years will be limited to a maximum of 50% (from 100%).
  • The inclusion rate for capital losses carried forward and back will be reduced to a maximum of 50% (from 80%).

Example 1

An individual earning ordinary income of $250,000 who disposes of capital property in the year at a capital gain of $1,500,000 will compute regular federal income tax of $304,778 and federal AMT of $322,271 [the AMT inclusion rate for capital gains will increase to 100%].

Example 2

An individual earning ordinary income of $450,000 who donates a capital property that is not a publicly listed security, with an ACB and FMV of $100,000 and $1,000,000, will compute regular federal income tax of $49,483 and federal AMT of $129,123 [the capital gains inclusion rate for the donated security will increase, and the donation tax credit will be limited to 50%].

Example 3

An inter-vivos trust (that is neither excluded from AMT, nor qualifies for a basic exemption amount) which borrows $1,000,000 at 1% to earn interest income at 3% and distributes the resulting net income of $20,000 to the trust beneficiaries will compute regular federal income tax of nil and federal AMT of $1,025 [50% of the interest expense deduction will be denied, an inter‑vivos trust will not generally benefit from the basic AMT exemption, and the $20,000 distribution does not fully eliminate the higher income for AMT purposes].

Balaji (Bal) Katlai, Hugh Neilson, H. Michael Dolson, "AMT and Intergenerational Business Transfers: Planning Challenges", Tax for the Owner-Manager, Vol. 23, No. 4, October 2023, p. 3

Proposed AMT rules undercut the revised s. 84.1 (IBT) rules (p. 3)

  • The revised alternative minimum tax (AMT) rules, including increasing the percentage of capital gains included in adjusted taxable income (ATI) from 80% to 100% and the AMT rate from 15% to 20.5%, may work at cross purposes with the proposed regime for intergenerational business transfers (IBTs) that are excluded from the application of s. 84.1 (also coming into force on January 1, 2024).

Utilizing AMT within 7-year carryforward period (pp. 3-4)

  • Because of the IBT requirement that the parent transfer management of each relevant business to a child within either 36 or 60 months of the disposition time, or within such greater period of time as is reasonable in the circumstances, there may be reduced scope for the payment of increased salaries or bonuses during the AMT carryforward to recover AMT generated on the disposition.
  • The IBT requirement that all shares (other than specified class shares) be divested within 36 months limits the time within which discretionary dividends can be paid to create income for AMT recovery purposes – and, furthermore, removing the gross-up and the dividend tax credit for AMT purposes makes dividends a less efficient means of recovering AMT.
  • If the IBT sale occurs for deferred purchase price (debt), the 10-year reserve proposed by s. 40(1.2) may allow the parent to avoid AMT entirely if the gain is small enough – but for larger sales, utilizing the 10-year reserve may trigger AMT in multiple years, reducing the parent’s ability to recover AMT.
  • Because interest is more effective than dividends in recovering AMT, the parent may tend towards setting a higher rate of interest on any IBT debt.

Charitable donations (p. 4)

  • If the parent makes charitable donations out of the sales process, the halving of the charitable credit under the revised AMT rules may very well compound the AMT difficulties both immediately and as a result of the competition between the need in the AMT carryforward period to recover the AMT from the sale and from the donation, particularly if the IBT planning relies on the 10-year reserve.

Paragraph 127.52(1)(d)

Articles

David Carolin, Nadia Rusak, Manu Kakkar, "AMT: Alternative Minimum Tax Should Be Renamed Additional Massive Tax", Tax for the Owner-Manager, Vol. 25, No. 3, July 2025, p. 8

AMT to a non-resident disposing of TCP (pp. 10-11)

  • The preamble to s. 127.5 states that alternative minimum tax (AMT) applies to all individuals (with no exemptions for non-residents). Accordingly, a non-resident selling taxable Canadian property (TCP) often will be subject to AMT on the resulting capital gain (100% of which is included in ATI under s. 127.52(1)(d)), with likely no opportunity to recover the AMT in subsequent years.
  • Although the purchaser of the TCP may have withheld under s. 116, the non-resident nonetheless is required to file a Canadian tax return to report the capital gain (and claim the withheld amount as an installment payment), so that the application of AMT may give rise to a balance owing upon such T1 filing.

Paragraph 127.52(1)(j)

Articles

David Carolin, Nadia Rusak, Manu Kakkar, "AMT: Alternative Minimum Tax Should Be Renamed Additional Massive Tax", Tax for the Owner-Manager, Vol. 25, No. 3, July 2025, p. 8

AMT on prescribed-rate loan trusts (pp. 9-10)

  • Where a family member with high taxable income has lent money to a trust at the prescribed rate provided in Reg. 4301(c), under s. 127.52(1)(j) only 50% of the interest paid by the trust under this loan is deductible in computing its adjusted taxable income (ATI) (and only 50% of any fees paid to an investment advisor would be deductible in computing ATI).
  • The s. 104(6) deduction is only available for distributions of income computed under the ordinary rules and does not permit the distribution of the additional ATI.
  • A possible solution is for the trust to forgo claiming deductions under s. 20 and distribute the resulting increased income to its beneficiaries (provided they are both capital and income beneficiaries), and who might be in a low tax bracket.

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