Alternative Minimum Tax on Both Sides of the Border: How the US and Canadian AMT Catch Cross-Border Filers

Short version: Canadian Alternative Minimum Tax Explained

Both Canada and the United States run a parallel tax calculation with fewer deductions and a flat rate, and require you to pay the higher of the regular tax and the alternative minimum tax. A cross-border filer can be caught by either, and the situations that trigger each are different. Canada's AMT was substantially rebuilt for tax years beginning in 2024 and now catches large capital gains, stock option benefits, and heavy charitable giving. The US AMT catches incentive stock option exercises and, less often since 2018, high state taxes.

Key takeaways

• Canadian AMT (2024 onward): 20.5% rate on adjusted taxable income above an exemption of roughly $177,000 (indexed), with 100% of capital gains included (versus 50% for regular tax), 30% of employee stock option benefits, and only 50% of most non-refundable credits allowed. AMT paid is a credit against regular tax for the following seven years.
• US AMT: 26% and 28% rates on alternative minimum taxable income above an exemption near $90,000 (single) that phases out at high incomes, with the incentive stock option spread, state and local tax deductions, and certain other items added back. The TCJA exemption levels were made permanent in 2025.
• Both countries allow a foreign tax credit against their AMT, but the calculation differs from the regular FTC and can leave credits stranded.
• Canadian AMT is the more common trap for cross-border filers because it catches the deemed disposition on departure, and an emigrant rarely has future Canadian tax to recover the AMT credit against.

Canadian AMT after the 2024 overhaul

The rebuilt Canadian AMT includes 100% of capital gains in the base, so a large gain that is half-taxable under the regular calculation is fully taxable under AMT at 20.5%. For a taxpayer with little other income and a very large gain, AMT can exceed regular tax. The departure tax is the cross-border trigger: a deemed disposition of $2 million of gains on leaving Canada produces $1 million of regular taxable income but $2 million of AMT income.

AMT paid is recoverable as a credit against regular tax in the next seven years, but only if you have Canadian regular tax to absorb it. An emigrant who leaves Canada has no future Canadian regular tax in most cases, and the AMT credit is lost. That makes the AMT a permanent cost of departure for large-gain files, and it argues for realizing gains in stages before the departure year where possible.

Non-residents are subject to Canadian AMT on Canadian-source income in the same way, and the AMT foreign tax credit is computed on the AMT base.

US AMT for cross-border filers

The US AMT exemption is high enough after the TCJA changes that most salaried taxpayers do not pay it. The cross-border triggers are:

• Incentive stock options. The spread on exercise is an AMT preference. A Canadian moving to the US with ISOs from a US employer, or exercising after arrival, can trigger AMT with no cash to pay it.
• Foreign tax credit limitation. The AMT foreign tax credit is computed separately (Form 1116 for AMT), and the limitation fraction uses AMT income. A US citizen in Canada with large Canadian tax and modest AMT income can find the AMT FTC limited even when the regular FTC is not.
• State taxes. Not deductible for AMT, which matters for US citizens in high-tax states with Canadian income.

The foreign tax credit interaction

Both countries allow foreign tax paid to reduce AMT, but each uses its own limitation. Canada's AMT foreign tax credit is based on the AMT calculation; the US requires a separate Form 1116 computed on AMT income and applies the same basket rules. A credit that fully offsets regular tax can be limited under AMT, leaving a residual AMT liability in a year when the taxpayer expected to owe nothing.

Worked example

An Ontario resident leaves Canada on June 30 with $1.5 million of unrealized gain in a non-registered account and $80,000 of other income for the year.

• Regular tax. $750,000 taxable gain plus $80,000: roughly $430,000 of combined federal and Ontario tax.
• AMT. $1.5 million of gain fully included plus $80,000, less the exemption: about $1.4 million of AMT income at 20.5% federally plus Ontario's AMT, roughly $360,000 combined. Regular tax is higher; no AMT.

Change the facts: $3 million of gain on private company shares that qualifies for the lifetime capital gains exemption. Regular tax drops sharply because $1.25 million of the gain is exempt; AMT includes 30% of the exempt portion and 100% of the rest, and AMT becomes the operative tax with no future Canadian income to recover it against.

Official sources

"The alternative minimum tax (AMT) applies to taxpayers with high economic income by setting a limit on those benefits. It helps to ensure that those taxpayers pay at least a minimum amount of tax." — Internal Revenue Service, Topic No. 556, Alternative Minimum Tax, https://www.irs.gov/taxtopics/tc556

"Minimum tax limits the tax advantage you can receive in a year from certain incentives. [...] If your income is more than $177,882, you may have to pay minimum tax (complete Form T691, Alternative Minimum Tax, and enter the result on line 41700 of your return)." — Canada Revenue Agency, Minimum tax, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/minimum-tax.html

Practitioner note

The Canadian AMT is now a departure-planning item, not an afterthought. On large-gain exits, particularly where the lifetime capital gains exemption or large charitable donations are involved, we compute both the regular tax and the AMT for each candidate departure year, because AMT paid by an emigrant is usually never recovered.

See also: Planning a move? See the Canada-to-Florida guide and browse every corridor by city, province, and state.

Next step

Fairlight prepares the departure tax and AMT analysis, the final Canadian return, and the first-year US return with the AMT foreign tax credit. See cross-border pricing or book a call.