Alternative Minimum Tax (AMT)

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fundamental
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Alternative Minimum Tax (AMT)

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Simple Tax offers a calculator which suggests for Canadians whose only income is eligible dividend income can earn $60,0000 in eligible dividend income and pay under $300 in federal/provincial taxes. Or pay under $4k in taxes if realizing $60,000/yr in capital gains.

Question: Would AMT apply for a Canadian whose only income is either eligible dividend income or realized capital gains derived off of a 7 figure investment portfolio?

For example:
a) A Canadian who lives off of $60,000/yr in eligible dividend income ($267 in federal/provincial tax)
b) A Canadian who lives off of capital deducted from an investment portfolio which realizes $60k/yr in capital gains ($3886 in federal/provincial tax)
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Re: Alternative Minimum Tax (AMT)

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Re: Alternative Minimum Tax (AMT)

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Keep in mind that AMT is greatly reduced or eliminated when you have other sources of income. I have never paid incremental AMT even though I have very significant divs. Other income is, in my case, mostly pensions.
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Re: Alternative Minimum Tax (AMT)

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fundamental wrote: 31 May 2017 14:34 Simple Tax offers a calculator which suggests for Canadians whose only income is eligible dividend income can earn $60,0000 in eligible dividend income and pay under $300 in federal/provincial taxes. Or pay under $4k in taxes if realizing $60,000/yr in capital gains.

Question: Would AMT apply for a Canadian whose only income is either eligible dividend income or realized capital gains derived off of a 7 figure investment portfolio?

For example:
a) A Canadian who lives off of $60,000/yr in eligible dividend income ($267 in federal/provincial tax)
b) A Canadian who lives off of capital deducted from an investment portfolio which realizes $60k/yr in capital gains ($3886 in federal/provincial tax)
Is that $60,000 of eligible dividends supposed to be the "Actual amount" or the "Taxable amount"? Remember there is a 38% gross up. $60,000 of 'actual' dividends gets grossed up to $82,800 and there would be almost $1,000 of Federal AMT
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Re: Alternative Minimum Tax (AMT)

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DavidR wrote: 01 Jun 2017 14:44 Is that $60,000 of eligible dividends supposed to be the "Actual amount" or the "Taxable amount"? Remember there is a 38% gross up. $60,000 of 'actual' dividends gets grossed up to $82,800 and there would be almost $1,000 of Federal AMT
The calculator provided isn't perfectly clear, but it appears to be the "actual" amount. Either way, the taxes payable are minimal.
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Re: Alternative Minimum Tax (AMT)

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fundamental wrote: 01 Jun 2017 15:28
DavidR wrote: 01 Jun 2017 14:44 Is that $60,000 of eligible dividends supposed to be the "Actual amount" or the "Taxable amount"? Remember there is a 38% gross up. $60,000 of 'actual' dividends gets grossed up to $82,800 and there would be almost $1,000 of Federal AMT
The calculator provided isn't perfectly clear, but it appears to be the "actual" amount. Either way, the taxes payable are minimal.
Depends upon your definition of minimal I guess. My tax software (using 2016 rates) shows no federal tax on an actual amount of $43,478 (which would be grossed up to $60,000), but $1,279 of federal tax on an actual amount of $60,000 - most of which is AMT.
YMMV
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Re: Alternative Minimum Tax (AMT)

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Well, what with all the trading and capital gains realized, we've hit the AMT threshold. I was a bit surprised and it's thrown off my tax payment installments a bit. Looks like we'll have to cough up a bit more than planned for in April. Just wondering if others were surprised when this extra tax kicked in and how this experience came about.

Any thoughts would be appreciated.

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Re: Alternative Minimum Tax (AMT)

Post by scorpionman »

Why should there be amt , taxes are high anyway...in Belgium you can make ten million dollars in capital gains and pay zero percent tax. In Netherlands like 1.2 percent.
I think there should be a minimum tax break, not an amt )
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Re: Alternative Minimum Tax (AMT)

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If I modeled my 2018 income situation well a few months back, tax year 2018 will make it 4 out of the last 5 years I have paid AMT. The total is in low 5 figures IIRC. I usually only have capital gains and dividends, plus I have interest expense on margin activities. I have also discovered that charitible donations provide no relief from AMT.

The one year I did not pay, I recovered a bit paid other years. I think things carry back 7 years before the AMT paid is gone forever.
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Re: Alternative Minimum Tax (AMT)

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2 yen wrote: 28 Feb 2019 18:36 Well, what with all the trading and capital gains realized, we've hit the AMT threshold. I was a bit surprised and it's thrown off my tax payment installments a bit. Looks like we'll have to cough up a bit more than planned for in April. Just wondering if others were surprised when this extra tax kicked in and how this experience came about.

Any thoughts would be appreciated.
From what I remember last time I looked at, capital gains, by themselves, will never make you hit AMT (except stuff taxed at 0% such as selling certain businesses / once in a lifetime CG exemption).

You can get into AMT by having lots of eligible dividends though, and little other income.
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Re: Alternative Minimum Tax (AMT)

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:thumbsup: to Adrian for hitting it on the nose. https://www.mnp.ca/en/posts/what-is-the ... -paying-it
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Re: Alternative Minimum Tax (AMT)

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AltaRed wrote: 02 Mar 2019 20:53 :thumbsup: to Adrian for hitting it on the nose. https://www.mnp.ca/en/posts/what-is-the ... -paying-it
Thanks guys. That link explains AMT very clearly.

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Re: Alternative Minimum Tax (AMT)

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adrian2 wrote: 02 Mar 2019 20:42 You can get into AMT by having lots of eligible dividends though, and little other income.
My question is actually about tax software based on the above. I came to understand (a couple years ago) that the above could be true for some retirees and was curious how my tax software handled it. I wanted to try to find out what the definition of "lots" and "little" was in the above context.

Let me ask my very specific question, feel free to answer more generically for other software. Pleas read in full before answering (I explain why I ask and what I do now).

My basic question is: Does Turbo Tax handle this fully automatically?
By that I mean will it calculate AMT and then properly select the correct amount owing (AMT or regular) and use it for netfiling.

The obvious answer is go ask Intuit. I did a couple years ago, and got a meaningless answer. As such this was the result:
  1. When I asked Intuit it was clear at the time they were unsure. They basically said you can go into Forms mode and look at Form T691 to see what is going on, but offered nothing more than that. To me it looks like it does the calculations on the form. Typically, there is a calculation line that eventually states something like "If line 58 is "0", you are not subject to alternative minimum tax. If you want to apply a minimum-tax carryover from previous years against your 2018
    tax payable, complete parts 2 and 8 and attach a copy of this form to your return. Also, complete Schedule 1 and your return as usual.
    ".
  2. So I each year I open up the form and scroll to find that calculation line. I have never had to pay AMT to date, however, I am still not sure what Turbo Tax would do if I did.
  3. I think Turbo Tax now asks if you want to do a calculation for AMT. If it does, I say yes. However, I have no experience on what it exactly does if you have AMT owing.
Regardless, I am curious to what other have found with Turbo Tax or their software.
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Re: Alternative Minimum Tax (AMT)

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Do a trial run in your tax software, i.e. put in $40k of T5 eligible dividends and no other income. Try another one example with $80k of T5 eligible dividends and no other income. The beauty of tax software is to be able to play with numbers as much as you want.
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Re: Alternative Minimum Tax (AMT)

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So I foresee a time in the future where I have no employment income between ages 55-65 and my only day to day cash flow is derived from capital gains.

I did a trail run using TurboTax where someone in Ontario who's only source of funds is $100,000 in deliberate annual capital gains and it shows total taxes payable of $6,729

I don't see anything referencing AMT so would $6,729 be total tax owed assuming only monies earned are through securities investments?
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Re: Alternative Minimum Tax (AMT)

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optionable68 wrote: 03 Mar 2019 14:22 So I foresee a time in the future where I have no employment income between ages 55-65 and my only day to day cash flow is derived from capital gains.

I did a trail run using TurboTax where someone in Ontario who's only source of funds is $100,000 in deliberate annual capital gains and it shows total taxes payable of $6,729

I don't see anything referencing AMT so would $6,729 be total tax owed assuming only monies earned are through securities investments?
As I wrote above, capital gains, in and by themselves, would never make you pay AMT, as long as the inclusion rate is 50% and not 0%.
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Re: Alternative Minimum Tax (AMT)

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So I spent more time on this (Turbo Tax) and found some things that may be useful.
optionable68 wrote: 03 Mar 2019 14:22 So I foresee a time in the future where I have no employment income between ages 55-65 and my only day to day cash flow is derived from capital gains. I did a trail run using TurboTax where someone in Ontario who's only source of funds is $100,000 in deliberate annual capital gains and it shows total taxes payable of $6,729. I don't see anything referencing AMT so would $6,729 be total tax owed assuming only monies earned are through securities investments?
My problem was, I could not tell easily tell if Turbo Tax was utilizing AMT if it was due or in play. I followed AltaRed's advice and tried some combinations. Here is what I think. FYI, I think Turbo Tax is taking AMT into consideration.
  • In the upper right corner of Turbo Tax you can always click on "View Tax Summary". On that summary page there is a section called "Refund or balance owing". In that section there is a line item titled "Minimum Tax". If this is non-zero I think you paying AMT. I attach an screen shot.
  • amt.jpg
    amt.jpg (89.74 KiB) Viewed 58 times
  • You can also go into Forms mode and open form T691 where this is calculated. Scroll through but look at lines 50, 58, and 95.
  • While still in forms mode, I also opened my fictitious T5's then modified and saved them. These lines (50, 58, 95) on T691 are immediately updated.
  • At least in my simple testing, I did not find Turbo Tax to alert me to this fact. In other words, it never gave me any "heads up", recommendation, or review that suggested AMT was in play.
Actually, I cannot stress following this advice enough....
AltaRed wrote: 03 Mar 2019 13:17 Do a trial run in your tax software, i.e. put in $40k of T5 eligible dividends and no other income. Try another one example with $80k of T5 eligible dividends and no other income. The beauty of tax software is to be able to play with numbers as much as you want.
I tried all kinds of fictitious situations, and found it interesting to see various results.

Finally, I was already following my own advice my looking at form T691. However, I did not know about the line on the tax summary page. I went back to 2013 to see if I had paid AMT but was unaware that I did. They were all zero (which for me is what I would expect).

I feel better about this now in Turbo Tax.
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Re: Alternative Minimum Tax (AMT)

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adrian2 wrote: 03 Mar 2019 15:32
optionable68 wrote: 03 Mar 2019 14:22 So I foresee a time in the future where I have no employment income between ages 55-65 and my only day to day cash flow is derived from capital gains.

I did a trail run using TurboTax where someone in Ontario who's only source of funds is $100,000 in deliberate annual capital gains and it shows total taxes payable of $6,729

I don't see anything referencing AMT so would $6,729 be total tax owed assuming only monies earned are through securities investments?
As I wrote above, capital gains, in and by themselves, would never make you pay AMT, as long as the inclusion rate is 50% and not 0%.

Thanks adrian2 - I guess the only concern then is does CRA consider this a business, and that comes down to unspecified trading frequency, but that's a whole other topic...
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Re: Alternative Minimum Tax (AMT)

Post by Eclectic12 »

Not just trading frequency ... there's about eight factors or so.
https://www.taxtips.ca/personaltax/inve ... income.htm

Keep in mind that if there is part of the portfolio that isn't being traded (i.e. long term investments with few trades), these can be put into a separate account that would pay CG taxes instead of business income.


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Re: Alternative Minimum Tax (AMT)

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In light of this thread I went back to my 2018 Turbotax file which is still in progress. Turns out, without inputting my wife’s pension income she would pay AMT. Turbo tax seems to calculate it correctly. The AMT form (T691) runs 7 pages and would be very difficult to estimate on your own. Talk about complicated! Quite interesting actually. I will have to be careful that I don’t pay AMT inadvertently. I presume if you don’t pay AMT form T 691 isn’t generated? Doesn’t seem to be a separate line item on Form 1?
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Re: Alternative Minimum Tax (AMT)

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UFile doesn't generate T691 if there is no AMT. I doubt any tax software would generate non-value forms but that is speculation on my part.
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Re: Alternative Minimum Tax (AMT)

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SQRT wrote: 04 Mar 2019 11:27 I presume if you don’t pay AMT form T 691 isn’t generated? Doesn’t seem to be a separate line item on Form 1?
AltaRed wrote: 04 Mar 2019 11:34 I doubt any tax software would generate non-value forms but that is speculation on my part.
I cannot answer with 100% certainty either, but here is a bit more commentary.

Every year I definitely open and try to review the T691. To date, I have correctly never had to pay AMT. In addition, I print out a PDF version of my return. I assume, of course, that the PDF matches what gets Netfile'd. With that in mind, the following is true for me (Turbo Tax):
  1. My PDF of the 2017 return (which has no AMT payable) does not have a T691 present.
  2. I generated a PDF for the fictitious 2018 return (mentioned in this thread) that does have AMT due. In that PDF I do see a T691.
Hope that helps a bit.
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