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Unpacking Canada’s 2024 Budget – Tax Changes, Investment Opportunities, and More

by | Apr 24, 2024

2024 Canada Budget

Unpacking Canada’s 2024 Budget – Tax Changes, Investment Opportunities, and More

Chrystia Freeland, Canada’s Deputy Prime Minister and Minister of Finance, presented the federal budget on April 16, 2024, amid the backdrop of Canadian citizens grappling with the significant challenge of elevated costs of living. The budget aimed to confront these challenges head-on by introducing measures focused on building more affordable housing, reducing living expenses, and stimulating economic growth. While there were no proposed changes to personal tax brackets, the budget suggested significant adjustments in the realm of capital gains and alternative minimum tax (AMT) to alleviate the tax burden and encourage economic activity.

Capital Gains Inclusion Rate


One of the most significant changes proposed in the budget was the increase in the capital gains inclusion rate. The budget proposed raising the capital gains inclusion rate from 50% to 66.67% for corporations and trusts, effective June 25, 2024. For individuals, the rate would increase on capital gains exceeding $250,000, also to 66.67%. This means that individuals, corporations, and trusts would pay tax on a larger portion of their capital gains. The $250,000 threshold would apply to capital gains realized by individuals, either directly or indirectly via a partnership or trust, net of any current-year capital losses, capital losses of other years, and capital gains related to certain exemptions.

Moreover, the budget proposed a transitional rule for tax years that begin before and end on or after June 25, 2024. This rule would require separate identification of capital gains and losses realized before and after the effective date. This is crucial to ensure that taxpayers are subject to the appropriate inclusion rates and thresholds, considering both pre and post-change transactions.

Personal Tax Measures


In addition to changes in the capital gains inclusion rate, the budget outlined several personal tax measures. One such measure was the adjustment to the Lifetime Capital Gains Exemption (LCGE), which was set to increase from $1,016,836 to $1.25 million, effective June 25, 2024. The LCGE provides individuals with a lifetime exemption on capital gains realized from the disposition of qualified small business corporation shares and qualified farm or fishing property. The increase aimed to provide more tax relief to individuals selling these types of assets.

Furthermore, the budget introduced the Canadian Entrepreneurs’ Incentive, a measure designed to encourage investment in qualifying shares by eligible individuals. This incentive proposed a reduced capital gains inclusion rate of 33.33% on up to $2 million in capital gains per individual over their lifetime, starting January 1, 2025. This would complement existing capital gains exemptions and deductions.

Amendments to AMT


The budget also addressed amendments to the Alternative Minimum Tax (AMT), a parallel tax calculation designed to prevent high-income earners and certain trusts from avoiding tax through various incentives. One significant proposal was allowing individuals to claim 80% of the charitable donation tax credit when calculating AMT, up from the previously proposed 50%. This change would provide more tax relief to individuals making charitable donations, reducing their AMT burden.

Additionally, the budget proposed allowing deductions for Guaranteed Income Supplement (GIS), social assistance, and workers’ compensation payments under AMT. This would ensure that individuals receiving these benefits are not unduly burdened by AMT, aligning with the government’s aim to support low and moderate-income individuals.

Furthermore, the budget suggested exempting Employee Ownership Trusts (EOTs) from AMT. EOTs are a form of employee ownership where a trust holds shares of a corporation for the benefit of the corporation’s employees. Exempting them from AMT would encourage employee ownership and investment in businesses.

Home Buyers’ Plan (HBP)


Another area addressed in the budget was the Home Buyers’ Plan (HBP), which allows eligible home buyers to withdraw funds from their RRSPs to purchase their first home without tax implications. The budget proposed increasing the withdrawal limit from $35,000 to $60,000, providing greater flexibility for homebuyers. This increase would allow individuals or couples purchasing a home jointly to access more funds from their RRSPs, facilitating homeownership.

Additionally, the budget proposed extending the repayment period for HBP withdrawals made between January 1, 2022, and December 31, 2025, by three years. This extension would provide relief to individuals who made withdrawals during this period, allowing them more time to repay their RRSPs without penalty.

Personal Tax Credit and Deduction Changes


Several changes were proposed in personal tax credits and deductions. The budget suggested doubling the Volunteer Firefighters Tax Credit and extending the Mineral Exploration Tax Credit for one year. These measures aimed to provide additional support to volunteer firefighters and encourage investment in mineral exploration.

Moreover, the budget proposed expanding the Disability Supports Deduction to recognize additional expenses incurred by individuals with impairments, subject to specified conditions. This would provide more tax relief to individuals with disabilities, helping them cover necessary expenses related to earning income or attending school.

Business Tax Measures


The budget outlined various measures aimed at supporting businesses and stimulating economic growth. One such measure was the Employee Ownership Trust (EOT) tax exemption, which provided a capital gains exemption to individuals selling their business to an EOT. This exemption, worth $10 million, aimed to encourage employee ownership and succession planning.

Additionally, the budget proposed an accelerated capital cost allowance (CCA) of 10% for new purpose-built rental projects that begin construction on or after April 16, 2024. This temporary measure aimed to incentivize investment in purpose-built rental housing, addressing housing affordability concerns.

Furthermore, the budget introduced an Electric Vehicle Supply Chain investment tax credit, providing a 10% tax credit on the cost of buildings used in key segments of the electric vehicle supply chain. This measure aimed to support investment in the electric vehicle industry and promote clean energy.

Clean Energy Tax Measures for Businesses


Several measures aimed at encouraging investment in clean energy were introduced. These included the Clean Electricity investment tax credit, which provided a refundable tax credit for investments in clean electricity generation projects. Additionally, the budget proposed adjustments to the Clean Technology Manufacturing investment tax credit to support businesses engaged in polymetallic extraction and processing.

Furthermore, the budget introduced the Canada Carbon Rebate for small businesses, providing a refundable tax credit to eligible businesses in proportion to the number of persons they employ. This measure aimed to support small and medium-sized businesses in transitioning to cleaner energy sources.

Other Measures


The budget also addressed changes in various social benefits and support programs. For instance, it proposed technical amendments to the Canada Pension Plan (CPP) legislation, including providing a top-up to the Death Benefit for certain contributors and introducing a partial children’s benefit for part-time students.

Additionally, the budget introduced the Canada Disability Benefit Act (CDDA), which aimed to provide a new benefit to low-income working-age persons with disabilities. This benefit would bridge the gap between existing federal support programs and provincial income support measures.

Furthermore, the budget proposed simplifying the issuance of official donation receipts by charities and qualified donors. It suggested removing certain requirements for donation receipts and allowing electronic issuance of receipts, making the process more efficient and aligned with modern practices.

Conclusion


In conclusion, the 2024 federal budget introduced a wide range of tax and wealth planning measures aimed at addressing the pressing challenges faced by Canadians. From changes in capital gains and AMT to adjustments in personal tax credits and deductions, the budget outlined an ambitious agenda to support individuals and businesses.

We will always continue to assess the situation and how the housing landscape could be influenced by present and future budgets. As always, we are always here to chat. Give us a call today!

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