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Federal budget 2023: Highest earning Canadians face minimum tax rate increase

The federal government is moving to raise the minimum tax rate paid by wealthy Canadians and narrowing its focus on the highest earners.

Ottawa is raising the alternative minimum tax rate and imposing new limits on many of the exemptions, deductions and credits that may apply under the system starting in 2024.

The tax introduced in 1986 is a parallel income tax calculation that allows fewer deductions, exemptions and tax credits than the ordinary tax rules. Those affected pay the alternative minimum or regular tax, whichever is higher.

The government announced in the budget that it is increasing the alternative minimum rate to 20.5 per cent from 15 per cent.

To help ensure lower- and middle-income Canadians don’t get caught up in the increase, it would increase the exemption to the start of the fourth federal tax bracket or about $173,000 for next year from its current level of $40,000.

The government says under the reforms it expects more than 99 per cent of the AMT paid by individuals would be paid by those who earn more than $300,000 a year.