Words by Mathew Lam
AMT is essentially a secondary tax calculation to be layered on top of your annual tax, in a given year, if the taxman thinks you’ve paid too little. Utilizing your lifetime capital gains exemption on a sale of a qualified business or significant donation credits are examples of tax reducing strategies that offend the AMT rules. Consequently, AMT is calculated and paid on top of your calculated income tax. Even though it can be carried forward for the next 7 years as a credit against future income taxes, who really wants to prepay CRA?
Well, looks like the government needs more funding and as a result, draft legislation is proposing to make individuals (and certain trusts) prepay more AMT. For the 2024 tax year, the AMT rate would be increased to 20.5% (currently 15%). There is also an increase in the various inclusion rates, such as 50% (currently 30%) of capital gains on other property, in determining the income base for AMT purposes. Some relief is provided to the middle class by increasing the basic AMT exemption to an estimated $173,000 (currently $40,000), however for those who would be affected, the net result is likely more taxes owing.
What does this mean for you? If you intend to implement tax saving strategies such as donations of significant shares, selling of your business or capital gains strip from your business, it may be beneficial to speak with your Farnham + Company representative and to consider whether it should be done before 2024.