Alternative minimum tax (AMT)

The purpose of the alternative minimum tax (AMT) is to restrict the tax benefits derived from various tax preference items, such as approved tax shelters, capital gains, investment tax credits and certain losses. It either imposes an overall limit on the total of these identified deductions, credits and exclusions or reduces the tax savings derived from these items.

You should not have to pay AMT unless your tax preference holdings exceed a $40,000 exemption. Even then, depending on your circumstances, the total of such items may significantly exceed this limit before AMT is triggered. In many cases, no AMT will be due. Additionally, it doesn’t apply in the year of death.

If your AMT exceeds the amount of your regular federal taxes payable, the AMT becomes the amount of federal tax used to determine your tax liability. You can also be subject to provincial AMT. You can recover AMT paid in future years when your regular tax liability exceeds your AMT for that year. The carry-forward period is up to seven years.