5000-G Rev. 01

Federal tax and credits (Schedule 1)

Minimum tax

Minimum tax limits the tax advantage you can receive in a year from certain incentives. You have to pay minimum tax if it is more than the federal tax you calculate in the usual manner. When calculating your taxable income for this tax, which does not apply to a person who died in 2001, you are allowed a basic exempt amount of $40,000.

Generally, to find out if you have to pay this tax, add together the amounts in section B below and 60% of the amount on line 127 of your return. If the total is $40,000 or less, you probably do not have to pay minimum tax. If the total is more than $40,000, you may have to pay it. To calculate if you have to pay it, use Form T691, Alternative Minimum Tax. To calculate your provincial additional tax for minimum tax purposes, use Form T1219, Provincial Alternative Minimum Tax.

Below are the most common reasons why you may have to pay minimum tax:

A. You reported a taxable capital gain on line 127.

B. You claimed any of the following:

• a loss (including your share of a partnership loss) resulting from, or increased by, claiming capital cost allowance on rental properties or certified feature films or productions;
• a loss from a limited partnership;
• most carrying charges (line 221) on certain investments;
• a loss from resource properties resulting from, or increased by, claiming a depletion allowance, exploration expenses, development expenses, or Canadian oil and gas property expenses;
• a deduction on line 248 for an employee home relocation loan; or
• a deduction on line 249 for employee stock options and shares.

C. You claimed any of the following tax credits on Schedule 1:

• a federal political contribution tax credit on lines 409 and 410;
• an investment tax credit on line 412;
• a labour-sponsored funds tax credit on line 414; or
• an overseas employment tax credit on line 426.

Example
Sergio claimed a $50,000 deduction in 2001 for carrying charges. Because this deduction is more than $40,000, Sergio may have to pay minimum tax. To find out, he should complete Form T691, Alternative Minimum Tax.

Tax Tip
You may be able to claim a credit against your taxes for 2001 if you paid minimum tax on any of your returns for 1994 to 2000 (see line 427).