Alternative minimum tax (AMT)

Alternative minimum tax is a parallel federal calculation that section 127.5 of the Income Tax Act applies to an individual. A seller who is an individual may meet the term in the year of a sale if their accountant runs the CRA’s form T691, Alternative Minimum Tax, which the CRA describes as the form used to calculate federal tax payable under AMT. The calculation is separate from the ordinary one.

How it works

Section 127.5 applies despite other provisions of the Act, but subject to subsection 120.4(3) and section 127.55. It applies where the individual’s ordinary tax, worked out without section 120, is lower than the amount it sets. Section 127.55 lists cases where it does not apply, including the year of death. Section 120.2 provides a minimum tax carry-over, which lets an individual deduct earlier additional tax from tax payable in a later year within the limits and conditions that section sets.

What to ask

• Whether the seller is an individual, since section 127.5 speaks of an individual
• Whether the accountant has run form T691 for the year of sale
• Whether any exception in section 127.55 or the carry-over in section 120.2 is relevant

For how the capital gains exemption interacts with this tax, see Does the capital gains exemption eliminate alternative minimum tax on a sale?