Certain taxes paid by Canadians are refundable. The most common of these is the Alternative Minimum Tax (AMT), a tax that seems to have been imposed for political reasons only. AMT is payable when individuals are able to reduce or eliminate income tax on other income by claiming deductions such as the capital gains exemption, RRSP contributions, tax shelters, etc. The theory is that everyone should pay at least some tax even if they have legitimate deductions that would otherwise eliminate the tax liability. If you pay AMT one year and are taxable in future years, then the AMT paid can be claimed back and used to reduce or eliminate taxes in those subsequent years. In other words it is refundable.

Another refundable tax is often paid by corporations that earn investment income. This tax is referred to as Part IV tax and is refundable to the corporation when it pays taxable dividends to its shareholders. One third of the dividend paid is refundable up to the amount of Part IV tax paid in the current or past years. If your corporation has been earning investment income it likely has a balance of tax that is refundable. Of course the dividends received by the shareholders are taxable, but if they are in a low tax bracket or have deductions or credits available, it may make sense to take dividends to access the corporation’s refundable tax on hand.

If you believe that either of these refundable taxes may be available to you, please contact your accountant at Harvey, Lister & Webb Incorporated to discuss the possibilities.

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