28 January 2003 External T.I. 2002-0166845 - Alternative Minimum Tax

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: To determine if Canadian Renewable and Conservation Expenses are deductible by an individual in the calculation of adjusted taxable income for Alternative Minimum tax purposes.

Position: NO

Reasons: Deductions allowed only to the extent of royalty income or income from the production of petroleum, natural gas and minerals.

XXXXXXXXXX 								2002-016684
L. Majerus
(613) 946-3558
January 28, 2003

Dear XXXXXXXXXX:

Subject: Alternative Minimum Tax ("AMT") and Canadian Renewable and Conservation Expenses ("CRCE")

We are writing in response to your correspondence of October 3, 2002, wherein you requested our views on the deductibility of CRCE in the calculation of adjusted taxable income for AMT purposes.

You have specifically requested that we comment on whether an active investor in a CRCE project is allowed a CRCE deduction for AMT purposes.

Our Comments

An individual is subject to AMT if there is an obligation to pay AMT pursuant to section 127.5 of the Income Tax Act (the "ACT"). The definition of individual, in subsection 248(1) of the ACT, means "any person other than a corporation".

In order to determine if an individual is subject to AMT the taxpayer must calculate the minimum tax payable ("minimum amount") under section 127.51 and the adjusted taxable income amount under section 127.52 of the ACT. Adjusted taxable income is used in the calculation of the minimum amount. Alternative minimum tax will be payable if the minimum amount exceeds tax otherwise payable.

Taxable income is adjusted for AMT purposes to limit or disallow certain deductions. Paragraph 127.52(1)(e) specifically requires that an individual's deduction for Canadian exploration expenses ("CEE") under section 66.1 be limited to the amount of royalty income or income "that can reasonably be considered as attributable to, the production of petroleum, natural gas and minerals". No distinction is made between an individual who is an active participant in a CRCE project and an individual who invests in flow-through shares or limited partnerships.

The definition of CEE in subsection 66.1(6) of the ACT includes CRCE. Thus, if an individual has no royalty or production income, CEE is not deductible in computing adjusted taxable income for AMT purposes.

We trust these comments will be of assistance.

Yours very truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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