Subject: Alternative Minimum Tax
In your memorandum of November 22, 1990 to Audit Applications Division, you requested our comments concerning the calculation of the Alternative Minimum Tax (AMT). The situation involved a taxpayer who claimed a capital gains deduction in excess of the net income for that year.
| The following example illustrates the problems: | |
| Taxable Capital Gains (farm property) | $300,000 |
| Business Loss for the year | $100 000 |
| Net Income before Capital Gains Deduction | $200,000 |
| Capital Gains Deduction claimed | $300.000 |
| Taxable Income | NIL |
| Non-Capital Loss for the year | $100,000 |
ln other words, the individual has deducted the full amount of his capital gains deduction ($300,000) in this case, notwithstanding that his net income was not sufficient to absorb the deduction. The issue is whether the $300,000 deduction claimed by the individual under section 110.6 is deductible in computing the individuals "adjusted taxable income" for AMT purposes.
After a review of the interaction of the provisions of sections 110.6, and paragraphs 111(8)(b) and 127.52(1)(h), we have concluded that where an individual claims the full amount of the capital gains deduction under section 110.6 for purposes of computing taxable income and a non-capital loss, that deduction will be recognised as having been deducted and therefore deductible under paragraph 127.52(h) of the Act in determining adjusted taxable income for AMT purposes. Thus, in the above example, $300,000 may be claimed under paragraph 127.52(1)(h) of the Act, thereby reducing the amount of adjusted taxable income for the purpose of determining the AMT
We trust the information will be of assistance to you.
B. W. DathDirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
cc W. Szyc Audit Applications Division