Subsection 127.52(1) - Adjusted taxable income determined
See Also
Peter W. Beare v. Minister of National Revenue, 91 DTC 411, [1991] 1 CTC 2471 (TCC)
The claim of the taxpayer for the capital gains deduction was limited to an amount which would result in a taxable income of nil. The same limitation also applied for purposes of the computation of adjusted taxable income under s. 127.52(1).
Administrative Policy
4 August 1992 T.I. (Tax Window, No. 23, p. 23, ¶2127)
Where an estate designates under s. 104(27.1) a lump-sum payment received from a DPSP as payable to the spouse of the deceased, and the spouse contributes that amount to an RRSP claiming a deduction under s. 60(j), RC will not view the amount so designated as being a single payment out of a DPSP for purposes of s. 127.52(1)(a)(ii)(B)(I).
10 May 1991 Memorandum (Tax Window, No. 3, p. 31, ¶1255)
Capital losses of other years should be deducted in computing adjusted taxable income irrespective whether they have been deducted by the taxpayer in computing his regular income for the year.
24 January 1991 Memorandum (Tax Window, Prelim. No. 3, p. 9, ¶1105)
Where a taxpayer claims the full deduction for which he is eligible, such amount will be considered to have been deducted for purposes of s. 127.52(1)(h) notwithstanding that a lesser deduction would have produced nil taxable income.
9 November 89 T.I. (April 90 Access Letter, ¶1183)
The adjustment in s. 127.52(1)(d) for the non-taxable portion of capital gains only applies to capital gains recognized pursuant to sections 38 and 41. Therefore, there is no corresponding adjustment for capital gain realized by a taxpayer pursuant to s. 14(1)(a)(v).
Articles
Balaji (Bal) Katlai, Hugh Neilson, H. Michael Dolson, "AMT and Intergenerational Business Transfers: Planning Challenges", Tax for the Owner-Manager, Vol. 23, No. 4, October 2023, p. 3
Proposed AMT rules undercut the revised s. 84.1 (IBT) rules (p. 3)
- The revised alternative minimum tax (AMT) rules, including increasing the percentage of capital gains included in adjusted taxable income (ATI) from 80% to 100% and the AMT rate from 15% to 20.5%, may work at cross purposes with the proposed regime for intergenerational business transfers (IBTs) that are excluded from the application of s. 84.1 (also coming into force on January 1, 2024).
Utilizing AMT within 7-year carryforward period (pp. 3-4)
- Because of the IBT requirement that the parent transfer management of each relevant business to a child within either 36 or 60 months of the disposition time, or within such greater period of time as is reasonable in the circumstances, there may be reduced scope for the payment of increased salaries or bonuses during the AMT carryforward to recover AMT generated on the disposition.
- The IBT requirement that all shares (other than specified class shares) be divested within 36 months limits the time within which discretionary dividends can be paid to create income for AMT recovery purposes – and, furthermore, removing the gross-up and the dividend tax credit for AMT purposes makes dividends a less efficient means of recovering AMT.
- If the IBT sale occurs for deferred purchase price (debt), the 10-year reserve proposed by s. 40(1.2) may allow the parent to avoid AMT entirely if the gain is small enough – but for larger sales, utilizing the 10-year reserve may trigger AMT in multiple years, reducing the parent’s ability to recover AMT.
- Because interest is more effective than dividends in recovering AMT, the parent may tend towards setting a higher rate of interest on any IBT debt.
Charitable donations (p. 4)
- If the parent makes charitable donations out of the sales process, the halving of the charitable credit under the revised AMT rules may very well compound the AMT difficulties both immediately and as a result of the competition between the need in the AMT carryforward period to recover the AMT from the sale and from the donation, particularly if the IBT planning relies on the 10-year reserve.