AMT (Alternative Minimum Tax)
The Alternative Minimum Tax (AMT) ensures that individuals with high incomes who use large tax preferences — such as the capital gains inclusion rate, stock option deductions, LCGE, or significant carrying charges — still pay at least a minimum amount of federal tax.
The AMT works by recalculating your tax using a broader income base (adding back certain deductions and preferences) and applying a flat rate of 20.5% to adjusted taxable income above $173,205 (2024). If the AMT amount exceeds your regular tax, you pay the higher AMT amount instead.
AMT paid in a given year is not lost — it creates a carry-forward credit that can be applied against regular tax in the following 7 years (to the extent regular tax exceeds AMT in those years). This means AMT is often a timing issue rather than a permanent additional tax. However, it can create cash flow challenges in years when large capital gains or option exercises occur.
Related Terms
Capital Gains
A capital gain arises when you sell a capital property — such as stocks, mutual funds, ETFs, real estate (other than your principal residence), or cryptocurrency — for more than its adjusted cost base (ACB).
LCGE (Lifetime Capital Gains Exemption)
The Lifetime Capital Gains Exemption allows qualifying Canadians to shelter up to $1,250,000 (2025) of capital gains from the sale of qualifying small business corporation (QSBC) shares, qualified farm property, or qualified fishing property.
Marginal Tax Rate
The marginal tax rate is the rate of tax applied to your last (or next) dollar of income.