CRA will honour incorrect AMT carryforward balances that arose due to an error in the CRA form

S. 120.2(3) computes the “additional tax” alternative minimum tax liability for the year (i.e., the excess of the minimum tax over the Part I tax otherwise payable for the year, as adjusted) that may be carried forward for up to seven years for deduction under s. 120.2(1) if the minimum tax levels fall below the adjusted Part I taxes otherwise payable in those carryforward years.

Form T691 currently provides that the tax on split income (TOSI) for the year is to be deducted in computing the adjusted Part I tax that is compared to the minimum tax in computing the additional tax. This has the effect of making TOSI for that year a tax that increases the “additional tax” for the year that thereby can be carried forward to be deducted from future years’ excesses of ordinary Part I tax over the minimum tax for those future years.

This is an error – and has been such since 2013, when s. 120.2(3)(b) was amended to exclude TOSI from the downward adjustments to the adjusted Part I ordinary tax liability for the year that is used in computing the additional tax (although, of course, it was only recently that the scope of TOSI was increased).

After acknowledging this error, CRA stated:

The CRA does not have a general administrative policy on the implications of a correction to a CRA form that may result in a reassessment for prior taxation years. … With respect to the amendment to Form T691, the CRA will correct the application of subsections 120.2(1) and 120.2(3), but will not issue reassessments for taxation years prior to 2021 changing the amount of tax payable that relates to that correction. System changes are being implemented so that additional tax amounts are computed using line 113 of Form T691 for taxation years prior to 2021 only and the unused additional tax balance resulting from line 113 for those years is available for the 2021 and subsequent taxation years.

In other words, CRA is grandparenting not only prior taxation years where an erroneously high carryforward amount was applied, but also unutilized carryforward balances that were erroneously calculated in 2020 and prior years’ returns and can still be erroneously claimed in future taxation years within the seven-year carryforward period.

Neal Armstrong. Summary of 8 October 2021 APFF Roundtable, Q.6 under s. 120.2(3)(b).