Alternative Minimum Tax (AMT): How It Works Cross-Border Between Canada and the US

Both Canada and the US run a parallel tax calculation alongside the regular one, and if the parallel number is higher, you pay the difference. That parallel calculation is the alternative minimum tax. Canada overhauled its AMT for tax years beginning after 2023, raising the rate and broadening the base. The US kept its version largely intact after the 2017 tax reform, which raised the exemption enough to pull most individuals out of range. Cross-border filers face both systems, and the interaction with the foreign tax credit is where most of the planning lives.

What is the AMT and why does it exist?

The AMT exists because both tax systems let taxpayers reduce their regular tax through deductions, credits, and preferential rates on certain income (capital gains, stock options, resource deductions). The AMT recalculates tax on a broader base with fewer preferences, and if the result exceeds the regular tax, the difference is payable as additional tax. The purpose is to ensure that high-income taxpayers who benefit heavily from preferences still pay a minimum effective rate.

Both countries allow the AMT paid in one year to be carried forward as a credit against regular tax in future years, so the AMT functions more as a timing accelerator than a permanent surcharge in most cases. The Canadian carry-forward is 7 years (ITA 120.2). The US carry-forward is indefinite (IRC 53).

How does the Canadian AMT work after the 2024 overhaul?

Before 2024, Canada’s AMT was a relic: a 15% rate on an adjusted base that caught fewer taxpayers each year as regular rates climbed. The 2024 overhaul (announced in the 2023 Fall Economic Statement and enacted as part of Bill C-69) rewrote the calculation.

The new Canadian AMT under ITA 127.52:

Element	Pre-2024	2024 and later
Rate	15%	20.5%
Capital gains inclusion	80%	100%
Stock option deduction allowed	100% of the regular deduction	50%
Charitable donation credit	Full	50% of the amount exceeding $200
Carrying charges and interest	Fully deductible	50%
Non-capital loss carry-forwards	Fully deductible	50%
Basic exemption	$40,000	$173,000 (2024, indexed)

The higher exemption pulls lower-income filers out, but the broader base and higher rate catch more upper-income filers, particularly those realizing large capital gains, exercising stock options, or claiming significant charitable donations.

For a Canadian resident who also files a US return, the Canadian AMT is an additional Canadian tax that feeds into the Form 1116 foreign tax credit calculation. The AMT is creditable as Canadian income tax paid, but it lands in a year when the base is computed differently from the regular base, so the FTC limitation fraction (foreign-source income over worldwide income) may not line up with the regular-year ratio.

How does the US AMT work?

The US AMT under IRC 55 computes a tentative minimum tax on alternative minimum taxable income (AMTI), which starts with regular taxable income and adds back certain deductions and preferences:

• State and local tax deduction (SALT): added back in full. This is the single largest AMT adjustment for most filers.
• Incentive stock option (ISO) exercise spread: the bargain element is income for AMT purposes in the year of exercise, even though it is not income for regular tax purposes until the shares are sold.
• Tax-exempt interest on private activity bonds: included in AMTI.
• Standard deduction and personal exemptions: added back (though post-TCJA, personal exemptions are zero through 2025 and now permanently through the One Big Beautiful Bill Act extension).

The 2025 exemption amounts (projected, post-OBBBA extension of TCJA):

Filing status	Exemption	Phase-out begins
Single	$88,100	$626,350
Married filing jointly	$133,300	$1,252,700
Married filing separately	$66,650	$626,350

The TCJA’s higher exemptions (made permanent by OBBBA) removed most middle-income filers from AMT exposure. The taxpayers who still hit it tend to be those exercising ISOs, those in high-SALT states who itemize, or those with large private-activity bond portfolios.

For a US resident who also files a Canadian return, US AMT is not directly creditable on the Canadian side as a foreign tax credit in the same mechanical way. The Canadian FTC under ITA 126 credits foreign “income or profits tax” paid, and the US AMT qualifies, but the credit is limited to the Canadian tax otherwise payable on the US-source income. If the Canadian tax on that income already exceeds the US tax (regular plus AMT), the US AMT creates no additional credit room.

When do cross-border filers get caught by both AMTs?

The scenarios where both AMTs bite in the same year are specific:

Large capital gain realization. A Canadian resident who is also a US person (citizen or green card holder) sells property at a large gain. Canada includes 100% in the AMT base (post-2024). The US includes the gain at the preferential rate for regular tax but may trigger AMT through the interaction with other preferences. Both AMTs can apply simultaneously, and the foreign tax credit on each side absorbs some of the double hit, but the limitation calculations differ.

Stock option exercise. A cross-border employee exercises incentive stock options. On the US side, the spread is AMT income in the exercise year. On the Canadian side, the stock option benefit is included in the AMT base at 50% of the regular deduction (post-2024). If the employee was resident in both countries during the vesting period, the income allocation between the two countries adds another layer.

Charitable donations. A dual filer making a large charitable gift gets a reduced AMT credit for the gift on the Canadian side (50% above $200) while claiming the full deduction on the US side. The mismatch can push the Canadian AMT higher without a corresponding US AMT increase.

Departure year. The year of a cross-border move can trigger AMT on the Canadian side through the deemed disposition, and on the US side through the combination of short-year income stacking and preference items.

How does the FTC handle AMT paid in the other country?

The FTC absorbs most of the double-AMT hit, but imperfectly.

On the US return, Canadian AMT paid is reported on Form 1116 as foreign tax paid, the same as regular Canadian tax. The credit is limited to the US tax attributable to Canadian-source income, computed under the regular FTC limitation of IRC 904. If the Canadian AMT pushes total Canadian tax above the limitation, the excess carries forward for up to 10 years. In the AMT year itself, the US also computes a separate foreign tax credit limitation for AMT purposes (Form 6251, Part III), which can differ from the regular limitation.

On the Canadian return, US tax paid (including US AMT) feeds into the foreign tax credit under ITA 126. The credit is limited to the lesser of the US tax paid on the income and the Canadian tax otherwise payable on that income. If the Canadian AMT is already higher than the regular Canadian tax, the additional US AMT doesn’t create more credit room; it may create an excess that generates a carry-forward on the US side but not on the Canadian side.

The net effect: in most years, the FTC prevents outright double taxation, but the timing mismatch between when AMT is paid and when the carry-forward credit is absorbed means a cross-border filer can be cash-negative for several years.

Can AMT paid in one year be recovered later?

Yes, in both countries. The AMT is designed as a timing mechanism, not a permanent tax, for most items.

Canada: The minimum tax carry-forward under ITA 120.2 allows AMT paid in one year to be credited against regular tax (in excess of AMT) in the next 7 years. For example, if AMT is triggered by a one-time capital gain in year 1, and regular tax exceeds AMT in years 2 through 8, the year-1 AMT is recovered through the carry-forward.

US: The minimum tax credit under IRC 53 works similarly but carries forward indefinitely. The credit is available only for AMT attributable to timing items (like ISO exercises) rather than exclusion items (like SALT), so not all US AMT generates a carry-forward credit.

For cross-border filers, the carry-forward is jurisdiction-specific. Canadian AMT carry-forward applies only on the Canadian return. US AMT carry-forward applies only on the US return. If you move from one country to the other, unused carry-forwards in the departure country may expire unused (Canada, after 7 years) or sit dormant (US, indefinitely but usable only against US tax).

Does the Canada-US treaty address AMT?

Not directly. The treaty addresses “income tax” generally, and both countries’ AMTs qualify as income taxes for treaty purposes. Article XXIV (Elimination of Double Taxation) requires each country to allow a credit for tax paid to the other, and that credit encompasses AMT. But the treaty does not override the domestic FTC limitation rules, so the credit is still subject to each country’s own ceiling.

The practical consequence: the treaty ensures AMT is creditable in principle, but the limitation mechanics are domestic, and neither country is required to give a dollar-for-dollar credit when its own limitation formula produces a lower number.

What should I do next?

If you are a cross-border filer with a large capital gain, stock option exercise, or significant charitable donations in a given year, run the AMT calculation on both sides before the transaction closes. The 2024 Canadian overhaul changed the math materially, and the interaction with the FTC means the net cost depends on the specific income mix and the limitation fractions on both returns.

• Form 1116 and how Canadian tax changes affect the US credit, the FTC mechanics that absorb the AMT
• Cross-border stock options: ISO, NQSO, and RSU, the AMT exposure on an ISO exercise
• Capital gains tax: Canada vs US compared, the rates and inclusion rules that feed the AMT base
• Canada vs US tax rates comparison, the regular-rate context behind the AMT floor
• Standard deduction vs itemizing for cross-border filers, the SALT deduction that triggers US AMT
• Leaving Canada permanently: tax checklist, the departure year where AMT often hits

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.