Subsection 120.2(1)
Administrative Policy
7 May 2024 CALU Roundtable Q. 11, 2024-1005801C6 - TOSI and AMT credit
A, age 25, had a taxable capital gain, which was not an excluded amount, from disposing of Opco shares, resulting in Part I taxes, including TOSI, of $50,000 for Year 1, but with the AMT for Year 1 amounting to $70,000. In Year 2, A had regular Part I tax payable of $60,000 (of which $50,000 was attributable to TOSI) and a lower AMT amount (of $40,000). Is A precluded from deducting the $20,000 AMT carryforward in Year 2 because A’s Part I taxes for Year 2, excluding TOSI taxes, of $10,000 is less than the $40,000 AMT payalbe for Year 2?
In essentially confirming this result, CRA indicated that the Year-2 AMT credit calculated under s. 120.2(1) is the lesser of the AMT carryforward amount of $20,000 and any excess of the modified Part I tax amount (excluding TOSI taxes) for Year 2 - of $10,000 - over the s. 127.51 AMT minimum amount as described in s. 120.2(1)(b), i.e., nil.
Subsection 120.2(2)
Administrative Policy
21 December 2004 External T.I. 2004-0093361E5 F - Report de l'impôt minimum de remplacement-décès
CRA indicated that, following the repeal of s. 120.2(2), which allowed for a three-year carryback, there is no provision allowing an individual, who died in 2004, to recover the amount of AMT paid in 2003, given the low level of tax payable in 2004. CRA noted:
Section 127.55 was amended in 1988 to eliminate the AMT that could arise in a taxation year in which an individual died. This amendment was enacted to address the possibility that a significant AMT liability might arise from the capital gain resulting from the deemed disposition of all of an individual's property at death, which, in the view of the legislature, would have produced a questionable result in terms of tax policy. At the same time, subsection 120.2(2), which allowed the AMT to be carried back to the three taxation years preceding the year of an individual's death, was repealed as being too complex.
Subsection 120.2(3)
Paragraph 120.2(3)(b)
Administrative Policy
7 October 2021 APFF Roundtable Q. 6, 2021-0900961C6 - APFF Q.6 - Minimum Tax Carryover and TOSI
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.
In acknowledging this error, CRA stated:
Generally, subsection 120.2(3) provides that the amount of additional tax that an individual may deduct for a taxation year under subsection 120.2(1) is the amount by which the applicable minimum tax for that year exceeds an amount adjusted under, inter alia, paragraph 120.2(3)(b). The latter amount corresponds to among other things the amount which, in the absence of section 120, would be that tax payable under Part I of the Income Tax Act for the taxation year if the individual were not entitled to any deduction under sections 126, 127 and 127.4. The terms of paragraph 120.2(3)(b) therefore do not allow a reduction of the tax payable by the amount of TOSI for a particular year.
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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Transitional Provisions and Policies | CRA will honour incorrect AMT carryforward balances that arose due to an error in the CRA form | 71 |