The Alternative Minimum Tax (AMT) is a parallel tax calculation that makes sure individuals and trusts with large gains or tax-preferred amounts pay at least a minimum level of tax. Each year you pay the higher of your regular tax and the AMT. Major changes took effect in 2024: fewer people with ordinary incomes are affected, but AMT is now much more likely in a year with a large one-time gain, donation or deduction.
How AMT works (2024 and later)
- Rate and exemption: the federal AMT rate is 20.5%, applied to adjusted taxable income above an exemption equal to the start of the fourth federal tax bracket ($177,882 for 2025, indexed each year). Ontario adds its own minimum tax equal to 33.67% of the federal AMT.
- Broader income: for AMT purposes, 100% of capital gains are included (instead of 50%), as well as 100% of employee stock option benefits. Gains sheltered by the lifetime capital gains exemption, and gains on donations of publicly listed securities, are 30% included.
- Fewer deductions and credits: only 50% of many deductions — such as interest and carrying charges on investments, employment expenses and non-capital loss carry-forwards — and of most non-refundable tax credits are allowed. Only part of the donation tax credit is allowed.
- Usually a timing difference: AMT paid can be carried forward for 7 years and used to reduce regular tax in later years when regular tax is higher than AMT.
- Year of death: AMT does not apply in the year of death.
Who may be affected
- Selling property or investments with a large gain — for example, a rental property, cottage or stock portfolio.
- Selling a business and claiming the lifetime capital gains exemption.
- Large charitable donations, especially gifts of appreciated securities.
- Exercising employee stock options.
- Large deductions — such as investment loan interest or losses carried forward.
- Trusts — most trusts do not get the basic exemption (graduated rate estates are an exception), so a family trust that realizes and keeps large capital gains can pay AMT.
Planning ideas
- Estimate AMT before a large sale or donation, while there is still time to plan.
- Where possible, spread a large gain over several years — for example, with a capital gains reserve when the sale price is paid over time.
- Coordinate the timing of large donations, gains and deductions.
- For trusts, consider whether gains should be allocated to beneficiaries.
- Keep track of AMT carry-forwards so they are recovered within 7 years.
Related topics: Real Estate Tax · Trusts & Partnerships · Estate Planning
Planning a large sale or donation? Contact us — we'll estimate whether AMT applies and how to reduce it.