| 921865 | |
| 19(1) | A. Humenuk |
| (613) 957-2134 |
August 5, 1992
Dear Sirs:
Re: Minimum Tax Provisions
We are replying to your letter of June 11, 1992 in which you ask for information concerning the minimum tax provision in general.
In the newspaper article which was attached to your letter, Tony Cote of the Ottawa Citizen points out that the minimum tax provision was introduced to ensure that high income earners pay sufficient amounts of tax but that it might also apply to retirees who receive large lump sum payments from their employers upon retirement. He referred his readers to Revenue Canada Taxation for full details.
The minimum tax provision was added to the Income Tax Act in 1986. Under this provision, an individual recomputes his or her taxable income as if certain items, such as RRSP contributions and capital cost allowance on certain investments, which may be deductible for regular tax purposes (hereafter referred to as specified deductions) were not allowable. The individual then deducts $40,000 from that amount and calculates federal tax payable as 17% of the balance.
If this amount is more than the federal tax payable as computed in the regular manner the individual pays the amount calculated under the minimum tax provision rather than the amount calculated for regular tax purposes. The amount by which the minimum tax exceeds tax calculated in the regular manner can be recovered in future years to the extent that the tax computed in the regular manner exceeds the tax determined under the minimum tax provisions in that subsequent year. The attached form T691 "Calculation of Minimum Tax" sets out the full details of the calculations required.
While the calculation of minimum tax may appear complex, the effect of this provision is to ensure that no individual can, by the use of the specified tax deductions, unduly reduce or eliminate tax payable for a particular taxation year by reducing the amount of taxable income by more than $40,000. Where an individual, including a retiree, does not claim specified deductions in excess of $40,000, minimum tax will not be payable. However, minimum tax may be applicable where the total of an individual's specified deductions exceed $40,000. As stated above the amount of any minimum tax which is payable can be recovered in future years provided that the amount of tax calculated for regular purposes exceeds the amount calculated for minimum tax purposes in that future year.
Note that an individual only needs to file form T691 if minimum tax is applicable or if the individual is claiming a minimum tax carryforward from a previous year. If you have any specific questions concerning the types of deductions which may create a minimum tax liability or the calculation itself, please contact the Ottawa District Office at 360 Lisgar Street, Ottawa, Ontario, K1A 0L8 or by telephone at 1-800-267-8440.
We trust our comments will be of assistance to you.
Yours truly,
J.A. Szeszyckifor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch