Alternative minimum tax: What’s changing for 2024?

The Alternative Minimum Tax (AMT) system imposes a minimum level of tax on taxpayers who claim certain tax deductions, exemptions or credits to reduce the tax that they owe to very low levels. Under the AMT system, there is a parallel tax calculation that allows fewer deductions, exemptions, and credits than under the regular income tax calculation. In the 2023 Federal Budget, the government announced that “to better target the AMT to high-income individuals,” several changes would be made to the rules for calculating the AMT, beginning in 2024.

Let’s review how the AMT system works, the proposed changes, some examples where the AMT may or may not arise and some planning considerations. Under the regular tax calculation, taxable income is calculated using deductions, exemptions and credits that are likely familiar to you. For example, 50% of capital gains are not taxed, and the federal donation tax credit could reduce federal tax by up to 33% (for the highest income-earners) of the amount of charitable donations.

In the 2023 Federal Budget, the government announced that “to better target the AMT to high-income individuals,” several changes would be made to the rules for calculating the AMT, beginning in 2024. The changes include raising the AMT rate, increasing the AMT exemption and broadening the AMT base by limiting certain amounts that reduce taxes — such as exemptions, deductions and credits.

If you pay AMT, it can be used to offset tax arising under the regular tax system for the following 7 calendar years. The reality is that most taxpayers should be able to recover AMT paid within the following 7 years. As a result, it may be best in most cases to view AMT as a prepayment of that future tax, rather than as an additional tax. The exception to this may be a situation where someone realizes a one-time significant capital gain, perhaps on the sale of a business, so there will be minimal income, and minimal regular tax, going forward. In such a case, careful planning may be necessary, such as creating taxable income in those 7 years, perhaps through RRSP or RRIF withdrawals or other means.

While the new AMT rules that start in 2024 are expected to affect very few taxpayers, this report shows that there are some situations in which AMT could apply. Be sure to speak with your tax professional to see how AMT could affect your situation in 2024, and, if appropriate, consider triggering a gain, exercising employee stock options or making your charitable gift in 2023, when the current AMT rules may result in no — or lower — AMT.

Read the full report: Alternative minimum tax — What’s changing for 2024? (PDF, 220 KB) Opens in a new window.