24 January 2005 Internal T.I. 2005-0111281I7 - 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.

Principal Issues: Whether alternative minimum tax applies with respect to the non-taxable portion of the proceeds received from the disposition of an eligible capital property.

Position: No

Reasons: The calculation of adjusted taxable income does not require any adjustment in respect of the disposition of an eligible capital property.

January 24, 2005

	BATHURST TSO	HEADQUARTERS
	Michel Saulnier	Randy Hewlett, B.Comm.
	Client Services Division	613-957-8973

		2004-011128

Disposition Of An Eligible Capital Property ("ECP")

Whether Alternative Minimum Tax ("AMT") Applies?

We are writing in response to your request for our opinion on whether AMT applies with respect to the non-taxable portion of the proceeds received from the disposition of an ECP.

In calculating a taxpayer's AMT, it is necessary to determine the taxpayer's "adjusted taxable income". Adjusted taxable income is determined under subsection 127.52(1) of the Income Tax Act (the "Act") which, in part, indicates that "an individual's adjusted taxable income for a taxation year is the amount that would be the individual's taxable income for the year or the individual's taxable income earned in Canada for the year, as the case may be, if it were computed on the assumption...". The provision then enumerates a number of assumptions on how to calculate adjusted taxable income, including an adjustment that accounts for the non-taxable portion of a capital gain. In terms of a situation where a taxpayer disposes of an ECP and has an income inclusion under subsection 14(1) of the Act, however, there is no such adjustment to taxable income. This is also the case where a taxpayer has disposed of an ECP that is a qualified farm property and claimed a deduction under section 110.6 of the Act. Consequently, it is our opinion that there is no situation where AMT would apply in respect of the disposition of an ECP.

In the specific situation you described, the taxpayer reported the disposition of an ECP in 1997 at line 110 on Schedule 3 (capital gain from the disposition of a qualified farm property). It is apparent that AMT was therefore automatically applied on the non-taxable portion. An income inclusion under subsection 14(1) of the Act that results from the disposition of an ECP that is a qualified farm property, however, is farming income. The income inclusion resulting from the disposition should not be reported on Schedule 3 but on line 141 (farming income), thereby removing it from the AMT calculation.

We trust our comments are of assistance. For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer.

Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

John Oulton, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch