Canadian Alternative Minimum Tax Explained
The parallel calculation, the 2024 changes, who it hits, and the carryforward
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Canada's alternative minimum tax is a parallel calculation ensuring that individuals who use large deductions, credits, or tax-preferred income pay a minimum tax. Changes effective in 2024 raised the rate and exemption and broadened the base, including more of capital gains and stock option benefits. AMT above regular tax can be recovered over the next seven years.
On this page
The 2024 changes (Bill C-69, enacted June 2024)
| Item | Before 2024 | 2024 and later |
|---|---|---|
| Rate | 15 percent | 20.5 percent |
| Exemption | C$40,000 | Start of the 29 percent federal bracket — C$173,205 for 2024, C$177,882 for 2025, C$181,440 for 2026 |
| Capital gains included | 80 percent | 100 percent (30 percent for gains sheltered by the lifetime capital gains exemption) |
| Stock option benefits | 80 percent included | 100 percent included (no stock option deduction) |
| Non-refundable credits | Most allowed in full | 50 percent of most credits; 80 percent of the donation credit |
| Deductions | Most allowed in full | 50 percent of interest and carrying charges, non-capital loss carryforwards, and certain other deductions |
| Gains on donated listed securities | Not included | 30 percent included |
Who it hits
Large one-time capital gains (selling a cottage or investment property — 30 percent of a gain sheltered by the lifetime capital gains exemption is included too), large stock option exercises, big charitable donations of appreciated listed securities (30 percent of the gain is included and only 80 percent of the donation credit counts), and heavy use of deductions such as interest, carrying charges, and loss carryforwards (only 50 percent allowed). Most people with ordinary income are unaffected because of the higher exemption.
Recovery
AMT in excess of regular tax carries forward seven years and can be credited against regular tax above the AMT in later years.
The cross-border angle
The U.S. has its own alternative minimum tax with different preferences (incentive stock options, for example). A cross-border filer can face either country's AMT in a year with a large gain; the foreign tax credit interacts with both — under the Canadian AMT, foreign tax is credited through a special foreign tax credit equal to the greater of the regular credit and the lesser of foreign taxes paid and 20.5 percent of foreign income (section 127.54 of the Income Tax Act).
Frequently asked questions
What is Canada's alternative minimum tax?
A parallel minimum tax calculation that limits the benefit of certain deductions, credits, and preferred income.
What changed in 2024?
The rate rose to 20.5 percent, the exemption to C$173,205 (C$181,440 for 2026), capital gains and stock option benefits became 100 percent included, and most non-refundable credits were cut to 50 percent.
Can I recover AMT?
Yes — the excess carries forward seven years against future regular tax.
Will a large capital gain trigger AMT?
It can, especially a one-time gain well above the exemption.
Official sources
The Canada Revenue Agency explains: “Minimum tax limits the tax advantage you can receive in a year from certain incentives.” — Canada Revenue Agency, Line 41700 – 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/deductions-credits-expenses/line-41700-minimum-tax.html
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our Canadian Tax Desk handles Canadian AMT modeling for large gains and option exercises, with coordination of the U.S. alternative minimum tax. See pricing or book a call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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