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 the exemption — $181,440 for 2026 (up from $177,882 in 2025), which tracks the 4th federal bracket threshold and is indexed annually. 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.
How it works
The AMT works by running two tax calculations side by side: your regular tax, and a separate 'adjusted taxable income' calculation that adds back preferential items such as the untaxed portion of capital gains, stock option deductions, and the LCGE, then applies a flat rate to the excess over an exemption amount. You pay whichever calculation produces the higher amount, on Form T691 as part of your T1 filing.
AMT typically catches higher-income individuals in a year when a large one-time preference item — a big capital gain, a significant stock option benefit, or a sizeable donation of securities — pushes their adjusted taxable income well above what their regular tax would suggest they owe. Someone with steady, ordinary income year to year is unlikely to ever trigger it.
AMT paid in a given year isn't necessarily a permanent extra cost: it creates a carry-forward credit usable against regular tax in any of the following 7 years, to the extent your regular tax exceeds the AMT amount in those years. But if your income never again produces a regular tax bill high enough to absorb the credit within that 7-year window, it simply expires unused, which is why large one-time transactions are worth planning around in advance.
Example: how the AMT calculation compares to regular tax (simplified)
Suppose a large capital gain mostly avoided regular tax through preferential treatment, but your AMT adjusted taxable income still comes to $250,000. For 2026, the AMT exemption is $181,440, so the taxable excess is $250,000 - $181,440 = $68,560.
At the flat AMT rate of 20.5%, that comes to $68,560 x 20.5% = $14,054.80 of tentative minimum tax. If your regular federal tax for the year works out to less than $14,054.80, you pay the AMT amount instead, and the difference becomes a credit you can use to reduce your regular tax bill in any of the next 7 years.
Frequently asked questions
Does the AMT apply to most taxpayers?
No — it mainly affects higher-income individuals who claim large tax preferences in a given year, such as a big capital gain, a significant stock option benefit, or a large donation of securities, that would otherwise reduce their regular tax well below what their income level would suggest.
Is AMT a permanent extra tax on top of my regular tax?
Usually not. Any AMT you pay beyond your regular tax creates a credit you can use to reduce your regular tax in any of the following 7 years, though the credit can expire unused if your regular tax doesn't exceed the AMT amount again within that window.
How do I find out if I owe AMT or have an AMT credit available?
AMT is calculated on Form T691 as part of your T1 filing, and any resulting carry-forward credit balance is tracked by the CRA and shown on your Notice of Assessment or in CRA My Account.
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 $1,275,000 (2026, up from $1,250,000 in 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.