How to Fill Out T691 Alternative Minimum Tax

What Is the Alternative Minimum Tax?

The Alternative Minimum Tax (AMT) is a parallel tax calculation in the Canadian income tax system. It was introduced to prevent high-income individuals from paying little or no tax by using certain deductions, exemptions, and credits that are otherwise available under the regular tax rules. The AMT recalculates your income by adding back certain preferential deductions and applying a flat tax rate, then compares the result to your regular tax. If the AMT amount is higher, you pay the difference.

The AMT is calculated on Form T691, officially titled "Alternative Minimum Tax." This form is filed with your T1 General Income Tax and Benefit Return. The Canada Revenue Agency (CRA) requires you to complete this form whenever certain tax preferences reduce your tax significantly. In recent years, the federal government has made changes to broaden the AMT, increasing the rate and adjusting the exemption threshold starting from the 2024 tax year.

Who Needs to File Form T691?

Not every taxpayer needs to worry about the AMT. It typically affects individuals who have:

• Large capital gains - If you realized significant capital gains in the year, the capital gains inclusion rate adjustment under AMT can increase your taxable income.
• Stock option deductions - Employees who exercise stock options and claim the stock option deduction may trigger AMT because this deduction is added back for AMT purposes.
• Tax shelter investments - Investments in limited partnerships or other tax shelters that generate large deductions can trigger AMT.
• Large charitable donation credits - Under the revised AMT rules, a portion of charitable donation credits is limited for AMT calculation.
• Significant carrying charges and interest expenses - Certain investment-related deductions are restricted under AMT.

If you use CRA-certified tax software, it will automatically flag if you need to complete Form T691 based on the information you enter. For newcomers who may have complex tax situations involving foreign assets, our newcomer tax guide provides additional context.

Understanding the AMT Calculation

The AMT calculation follows these general steps:

1. Start with your regular taxable income.
2. Add back certain tax preferences. These include the non-taxable portion of capital gains, stock option deductions, losses from tax shelters, and certain other deductions.
3. Subtract the AMT exemption. The basic exemption is $173,000 (as updated for 2024 and subsequent years). This means that your adjusted taxable income must exceed this threshold before AMT applies.
4. Apply the AMT rate. The AMT rate is 20.5% (updated from the previous 15% rate for tax years 2024 and later).
5. Subtract allowable non-refundable tax credits. Under AMT, only 50% of most non-refundable credits are allowed (reduced from 100% under regular tax).
6. Compare to your regular federal tax. If the AMT amount exceeds your regular federal tax, you pay the additional amount as AMT.

Step-by-Step Guide to Completing Form T691

Part 1: Adjusted Taxable Income

Begin by entering your taxable income from line 26000 of your T1 return. Then make the following adjustments:

Add back the following amounts:

• The non-taxable portion of capital gains (the portion excluded from income under regular rules)
• Stock option deductions claimed under paragraph 110(1)(d) or (d.1)
• Net losses from tax shelters or limited partnerships
• Certain resource-related deductions (Canadian exploration expenses, Canadian development expenses)
• Loss carryovers applied in the year that relate to AMT preference items

Subtract any amounts that are not subject to AMT adjustments as specified on the form. The result is your adjusted taxable income for AMT purposes.

Part 2: Calculate the Minimum Tax

From your adjusted taxable income, subtract the basic AMT exemption of $173,000 (or the applicable amount for your tax year). If the result is zero or negative, you do not owe AMT and do not need to complete the rest of the form.

If positive, multiply the result by 20.5% to get your gross minimum tax. Then subtract the allowable portion of your non-refundable tax credits. Under the updated AMT rules, you can claim only 50% of most non-refundable credits, though some credits like the basic personal amount remain at 100%. The T691 form instructions specify exactly which credits are limited.

Part 3: Determine AMT Payable

Compare your calculated minimum tax (from Part 2) with your regular federal tax (from your T1 return, before applying certain credits). If the minimum tax exceeds your regular federal tax, the difference is your AMT payable. Enter this amount on line 41700 of your T1 return.

If your regular federal tax is higher than or equal to your minimum tax, you do not owe any AMT for the year.

Part 4: AMT Carryforward

One important feature of the AMT is the carryforward provision. If you pay AMT in one year, you may be able to recover that amount in future years. The AMT paid can be carried forward for up to seven years and applied as a credit against regular federal tax in a year when your regular tax exceeds the minimum tax. This is calculated in Part 4 of Form T691 or on a separate schedule, depending on the tax year.

The carryforward ensures that the AMT is truly a timing difference rather than a permanent additional tax for most taxpayers. If your income and deductions return to normal levels in subsequent years, you can gradually recover the AMT you paid.

Recent Changes to the AMT

Starting with the 2024 tax year, the federal government made significant changes to the AMT:

• The AMT rate increased from 15% to 20.5%
• The basic exemption increased to $173,000 (from approximately $40,000)
• The capital gains inclusion rate for AMT purposes increased to 100% (from 80%)
• Non-refundable tax credits are limited to 50% for AMT calculation (previously 100%)
• Charitable donation tax credits are limited to 50% for AMT purposes
• The employee stock option deduction is fully added back for AMT

These changes mean that fewer low-income individuals will be affected by AMT (due to the higher exemption), but those with higher incomes and significant tax preferences will face a more substantial minimum tax. For detailed information, refer to the Department of Finance Canada announcements.

Common Scenarios That Trigger AMT

Selling a Property with Large Capital Gains

If you sell a rental property or investment property with a significant capital gain, the AMT may apply. Under regular tax rules, only a portion of the capital gain is included in income. Under AMT rules, a larger portion (or all) of the gain is included. If you are a non-resident selling Canadian property, you may also need to consider Form T2062 requirements.

Exercising Employee Stock Options

When you exercise stock options, you may claim a deduction that reduces the taxable benefit. For AMT purposes, this deduction is added back, potentially pushing your adjusted taxable income above the AMT exemption threshold. This is one of the most common AMT triggers for employees in the technology and financial sectors.

Using Tax Shelters

Investments in flow-through shares, limited partnerships, or other tax shelters can generate deductions that reduce your regular taxable income significantly. The AMT adds back these deductions to ensure you still pay a minimum level of tax.

How to Avoid or Minimize AMT

While you cannot always avoid AMT, there are strategies to minimize its impact:

• Spread capital gains over multiple years. If possible, stagger the sale of investments to keep gains below the AMT threshold in any single year.
• Time stock option exercises carefully. Consider exercising options in years when your other income is lower.
• Use the carryforward. Remember that AMT paid can be recovered in future years, so plan your income to take advantage of the seven-year carryforward window.
• Consult a tax professional. Given the complexity of AMT calculations, working with a qualified accountant or tax advisor is advisable. Our guide to finding an accountant can help.

Filing Tips for Form T691

Here are practical tips for completing and filing Form T691:

• Use certified tax software. The AMT calculation is complex, and software handles the adjustments automatically. This reduces the risk of errors significantly.
• Keep detailed records. Maintain records of all capital gains, stock option exercises, and tax shelter investments. You will need these for both the regular tax calculation and the AMT calculation.
• Track your AMT carryforward. If you pay AMT, keep a running total of your carryforward balance so you can recover it in future years.
• Review prior-year AMT. If you paid AMT in a previous year and your current-year regular tax exceeds your minimum tax, you may be able to claim a carryforward credit. Check your previous T691 forms and Notices of Assessment.

AMT and Provincial Tax

The AMT calculated on Form T691 is a federal tax. However, most provinces also have their own minimum tax provisions. In many cases, the provincial minimum tax is calculated as a percentage of the federal AMT. This means that if you owe federal AMT, you may also owe additional provincial tax. Check your provincial tax form (such as BC428 for British Columbia or ON428 for Ontario) for provincial AMT calculations.

Getting Help

If you believe you may be subject to AMT, consider seeking professional advice before filing. The CRA also provides guidance through their AMT information pages and the T691 form guide. For newcomers navigating complex tax situations, the WelcomeAide AI Navigator can help point you in the right direction.

Final Thoughts

The Alternative Minimum Tax is a safeguard in the Canadian tax system that ensures all taxpayers pay a fair share of tax, even when they benefit from significant deductions and credits. While the AMT calculation on Form T691 can be complex, understanding the basic mechanics helps you plan your finances and avoid surprises at tax time. Remember that AMT is often a timing difference, not a permanent tax, thanks to the seven-year carryforward provision. Use certified tax software, keep thorough records, and consult a professional if your tax situation involves large capital gains, stock options, or tax shelters.

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