Subsection 127.52(1)
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].