How does the alternative minimum tax work in Canada now, and what are the 2026 figures?
For 2026, Canada's alternative minimum tax is 20.5% of adjusted taxable income above a $181,440 exemption (the start of the 29% bracket). AMT includes 100% of capital gains (30% for LCGE and donated listed securities), allows half of many deductions and credits, and applies only when it exceeds regular federal tax. The excess carries forward 7 years.
The AMT figures for 2026, next to 2025
The minimum amount is one formula in s.127.51: 20.5% of adjusted taxable income minus the exemption, less the basic minimum tax credit laws-lois.justice.gc.ca. The exemption isn't a fixed number any more. It's the dollar amount where the 29% bracket starts under s.117(2)(d), so it rises with indexation every year
laws-lois.justice.gc.ca.
| Figure | 2026 | 2025 |
|---|---|---|
| AMT rate | 20.5% | 20.5% |
| Exemption (start of the 29% bracket) | $181,440 | $177,882 |
| Capital gains included | 100% | 100% |
| LCGE gains and donated listed securities | 30% | 30% |
| Most listed deductions allowed | 50% | 50% |
| Most personal credits allowed | 50% | 50% |
| Donation credit allowed | 80% | 80% |
| Carryover of AMT paid | 7 years | 7 years |
The 2026 figure comes from the CRA's indexed amounts: the 29% bracket begins at $181,440 canada.ca. For 2025, the CRA's own screening test on line 41700 uses $177,882
canada.ca.
These rules apply for 2024 and later years canada.ca. Before that, the rate was 15% and the exemption was a flat $40,000, which is why older articles still quote those numbers.
What adjusted taxable income adds back
Adjusted taxable income is taxable income recomputed under the assumptions in s.127.52(1) laws-lois.justice.gc.ca. Credits are cut separately in s.127.531
laws-lois.justice.gc.ca. These are the adjustments your clients actually hit.
| Item | Regular tax | AMT | ITA reference |
|---|---|---|---|
| Capital gains | 50% included | 100% included | 127.52(1)(d) |
| Gains sheltered by the LCGE | 50% included, all of it deducted | 100% included, deduction is 7/5 of the regular one, so 30% stays taxable | 127.52(1)(h)(ii) |
| Listed securities donated to a qualified donee | 0% included | 30% included | 127.52(1)(d.1) |
| Employee stock option benefit | 50% deduction | No deduction | 127.52(1)(h) |
| Taxable dividends | Grossed up, with the dividend tax credit | Actual amount, no gross up, no dividend tax credit | 127.52(1)(f), 127.531 |
| Interest and carrying charges to earn property income, including investment counsel fees | Fully deductible | 50% | 127.52(1)(j)(ii) |
| Employment expenses and union or professional dues | Fully deductible | 50% | 127.52(1)(j)(i) |
| CPP, QPP and PPIP contribution deductions | Fully deductible | 50% | 127.52(1)(j)(iii) |
| Moving, child care and disability supports deductions | Fully deductible | 50% | 127.52(1)(j)(iv) to (vi) |
| Noncapital, farm and limited partnership losses of other years | Fully deductible | 50% | 127.52(1)(i) |
| Rental and leasing CCA and carrying charges | Can create a loss | Limited to rental income | 127.52(1)(b) |
| Personal, age, pension, disability, tuition and medical credits | Full credit | 50% | 127.531(a), (b) |
| Charitable donation credit | Full credit | 80% | 127.531(c) |
| Political contribution, investment tax and labour sponsored funds credits | Allowed | Not allowed | 127.531 |
The 80% donation credit is in force: s.127.531(c) allows 4/5 of the credit claimed. A later amendment (S.C. 2026, c. 3) added investment counsel fees under s.20(1)(bb) to the 50% list and set a separate 30% rule for donated flow through shares in s.127.52(1)(d.2).
Two gains stay out of AMT entirely: the employee ownership trust exemption (s.110.61) and the qualifying cooperative conversion exemption (s.110.62) are deducted at twice the regular amount, which offsets the 100% inclusion.
Worked example: an LCGE sale that triggers AMT
Your client sells qualified small business corporation shares in 2026 for a $1,275,000 capital gain and claims the full 2026 LCGE. Her only other income is $100,000 of interest. To keep the arithmetic readable, the only credit used is the basic personal amount, and the figures are federal only.
| Step | Regular tax | AMT |
|---|---|---|
| Capital gain | $1,275,000 | $1,275,000 |
| Inclusion | 50%: $637,500 | 100%: $1,275,000 |
| LCGE deduction | $637,500 | 7/5 of $637,500: $892,500 |
| Interest income | $100,000 | $100,000 |
| Taxable income | $100,000 | $482,500 |
| Less exemption | Not applicable | $181,440 |
| Base | $100,000 | $301,060 |
| Tax before credits | $16,696.01 | 20.5%: $61,717.30 |
| Basic personal amount credit | $2,076.06 | Half: $1,038.03 |
| Federal tax | $14,619.95 | $60,679.27 |
Regular tax is 14% on the first $58,523 ($8,193.22) plus 20.5% on the next $41,477 ($8,502.79) canada.ca. The basic personal amount drops to the $14,829 minimum because net income, at $737,500, includes the $637,500 taxable gain before the LCGE comes off
canada.ca. At 14% that's a $2,076.06 credit.
Her minimum amount ($60,679.27) beats regular tax ($14,619.95), so she pays $60,679.27 of federal tax for 2026. The $46,059.32 difference is her AMT carryover, and her province adds its own minimum tax on top.
If she goes back to $100,000 of interest a year, her minimum amount falls to nil and she can recover up to her full regular federal tax each year, about $14,393 at 2026 rates once the full $16,452 basic personal amount applies again. The carryover is used up in the fourth year, well inside the 7 year limit.
For the exemption itself, see lifetime capital gains exemption 2026. For why regular tax still uses 50%, see capital gains inclusion rate 2026.
Who never pays AMT
Section 127.55 switches the tax off in these cases laws-lois.justice.gc.ca:
| Taxpayer or return | AMT applies? | ITA reference |
|---|---|---|
| An individual for the year of death | No | 127.55(c) |
| Rights or things return and the other separate returns listed | No | 127.55(a) |
| Spousal, alter ego or joint spousal trust, for the year that includes the beneficiary's death | No | 127.55(e) |
| Investment funds as defined in s.251.2(1), unless set up to avoid AMT | No | 127.55(f)(ii) |
| Unit trusts whose listed units are all or substantially all of their value | No | 127.55(f)(vi) |
| Employee ownership trusts | No | 127.55(f)(vii) |
| Qualifying Indigenous settlement and community trusts | No | 127.55(f)(viii), (ix) |
| Corporations | No | AMT applies to individuals only |
Every other trust is in scope, and most get no exemption at all. Section 127.51 gives the $181,440 only to an individual other than a trust, or to a qualified disability trust laws-lois.justice.gc.ca. A family trust that allocates nothing and keeps a large gain can pay AMT on its first dollar.
Filing T691 and recovering the tax
Form T691 computes the minimum amount, and the result goes on line 41700 canada.ca. The CRA says to run it when line 41700's add back list plus any taxable capital gain tops the exemption, and to compute provincial minimum tax on the 428 form or Form T2203
canada.ca.
AMT paid is a credit against regular tax for the next 7 years under s.120.2, but only to the extent regular tax for the year exceeds that year's minimum amount laws-lois.justice.gc.ca. It's claimed on line 40427, the carryover balance is on the latest notice of assessment, and anything unused after 7 years is lost
canada.ca. Quebec residents use Revenu Québec's TP-776.42 for the provincial claim.
Plan the recovery before the sale. A client who retires right after an LCGE sale may not have enough regular tax in the next 7 years to use the whole carryover, and whatever is left after year 7 becomes a permanent cost.
Sources
Does AMT apply in the year a client dies?
No. Section 127.55(c) exempts an individual for the year of death, and 127.55(a) also exempts the separate returns, such as the rights or things return laws-lois.justice.gc.ca. Those separate returns can't claim the minimum tax carryover either, under s.120.2(4)
laws-lois.justice.gc.ca.
Can my client still recover AMT paid in 2024?
Yes. AMT from any of the 7 preceding years can be claimed on line 40427 in a year when regular tax is higher than the minimum amount, so 2024 AMT is usable through 2031 canada.ca.
Is the $181,440 exemption available to a trust?
Only to a qualified disability trust. For every other trust the exemption is nil, so AMT is 20.5% of the trust's full adjusted taxable income, less its basic minimum tax credit laws-lois.justice.gc.ca.
Does a client with only salary and RRSP income need to worry about AMT?
Rarely. Salary, pension and RRIF income aren't added back, and only a few employee deductions are halved, so AMT usually shows up with capital gains, the LCGE, stock options, dividends, large carrying charges or loss carryforwards.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.