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.