AMT woes south of the border — what about us?
The Alternative Minimum Tax is getting a lot of coverage in the US since changes made by Reagan in the 80s are causing it to affect 80% of “families with an adjusted gross income of $75,000 to $100,000,” in other words, a lot of frickin’ families.
When the tax was first introduced in 1969, it was intended to catch only the wealthiest members of American society who were paying little to no tax thanks to various deductions, loopholes and shelters.
But in 1986, … the law was subtly changed to aim at a wholly different set of deductions, the ones that everyone gets, like the personal exemption, state and local taxes, the standard deduction, certain expenses like union dues and even some medical costs for the seriously ill. At the same time it removed and revised some of the exotic investment deductions.
We have AMT in Canada, but since I’m not reading stories in our media about this situation I’m assuming it isn’t a problem. I suppose the fact that we weren’t taught anything about it in any of the three tax courses I took in school supports the assumption that this doesn’t affect nearly as many Canadians.
If I had to guess, it’s because we missed the 1986 adjustments that occurred south of the border.
Deductions which are disallowed under AMT in Canada include:
- net losses created by CCA claimed for feature films and productions
- net losses resulting from deduction of carrying charges on certain investments, including rental or leasing property, and flow-through shares and resource property
- net losses from registered tax shelters and as a limited partner of a limited partnership
- net losses resulting from resource expenditures and depletion allowances (similar to CCA)
- one-quarter of net capital gains, including any for which you claimed the capital gains exemption
- the employee stock option deduction, a 25% deduction of the amount stock option benefit deductible in computing employment income
The form T691 for calculation of AMT in Canada is available on the Canada Revenue Agency’s website.
Hope for reform of the AMT in the US is apparently not soon coming. Despite the Democrats retaking control of the Congress, there’s no appetite for the type of large-scale restructuring to the tax code that this requires. The most likely “solution” will be small-scale tinkering which will address little issues but ignore the big problem. Politics as usual.
I'm a Chartered Accountant working in internal audit.