Finance Minister Chrystia Freeland presented the 2024 federal budget on April 16, which includes several proposals affecting Canadians’ financial, tax, and estate plans. Below is a summary of the key budget proposals that may impact Canadians. We have condensed what we believe to be the most critical tax measures outlined in the budget and their potential implications for you, your family, and your business. Additionally, it’s essential to recognize that the measures outlined in the 2024 Budget are currently proposals and may not be enacted into law as presented. Consult with your tax advisors for in-depth discussions and analysis regarding how these proposals might impact your specific circumstances before implementing any tax planning strategies.
For Individuals:
Capital Gains Inclusion Rates
The 2024 budget proposes changes to the capital gains inclusion rate. Currently set at 50%, where half of any capital gain is taxable, the budget suggests increasing this rate to two-thirds for corporations and trusts. This adjustment also extends to individuals, applying to capital gains exceeding $250,000 in a given year. Effective June 25, 2024, these changes would affect capital gains realized afterward.
The $250,000 threshold would impact capital gains realized by individuals, directly or indirectly, through partnerships or trusts. This threshold considers factors such as current-year capital losses, capital losses from previous years used to offset current-year gains, and gains eligible for exemptions like the Lifetime Capital Gains Exemption or proposed incentives.
Regarding employee stock options, deductions would align with the new inclusion rate, offering one-third of the taxable benefit. However, deductions of up to one-half of the taxable benefit (capped at $250,000 combined with capital gains) would remain available.
For 2024, the $250,000 threshold for individuals wouldn’t be pro-rated. Notably, capital gains from selling a principal residence remain exempt from taxation.
The Alternative Minimum Tax (AMT)
The Alternative Minimum Tax (AMT) operates as a parallel tax calculation, offering fewer tax credits, deductions, and exemptions than standard personal income tax rules. Taxpayers are required to pay either the regular tax or the AMT, whichever amount is higher. Changes to the AMT were proposed in last year’s budget, which aimed to increase the tax rate and broaden its applicability.
The recent budget introduces adjustments to the AMT proposals, including:
- Allowing individuals to claim 80% of the charitable donation tax credit, up from the previously proposed 50%.
- Permitting deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation payments.
- Entirely exempting Employee Ownership Trusts from the AMT.
- Enabling certain disallowed credits under the AMT to be eligible for carry-forward, such as the federal political contribution tax credit, investment tax credits, and the labor-sponsored fund’s tax credit.
- Introducing an exemption for AMT for specific trusts benefiting Indigenous Groups.
Home Buyers’ Plan
The Home Buyers’ Plan (HBP) is a Canadian program designed to assist first-time homebuyers. It permits eligible individuals to withdraw funds from their Registered Retirement Savings Plan (RRSP) to purchase or construct their first home or to acquire a home for a family member with a disability. Withdrawn funds must be repaid into an RRSP over 15 years.
The 2024 federal budget suggests increasing the Home Buyers’ Plan limit from $35,000 to $60,000 for withdrawals made after the budget announcement. Additionally, to further support recent and prospective first-time homebuyers, the budget proposes extending the repayment grace period for withdrawals made between January 1, 2022, and December 31, 2025, from two to five years.
Employee ownership trusts (EOTs)
Budget 2023 introduced tax rules to facilitate the establishment of Employee Ownership Trusts (EOTs), aiming to promote employee ownership in businesses. With certain conditions, the 2024 budget expands on this by proposing an exemption for the first $10 million in capital gains realized from selling a business to an EOT.
The 2024 budget specifies residency requirements for EOT beneficiaries, asset usage criteria for active businesses, and outlines how multiple individuals can share the exemption, capped at $10 million. However, events within 36 months after the sale could disqualify the exemption, such as loss of EOT status or changes in asset usage.
For Alternative Minimum Tax (AMT) purposes, exempted capital gains would face a 30% inclusion rate. These provisions apply to qualifying share dispositions between January 1, 2024, and December 31, 2026.
Disability Supports Deduction
The 2024 budget suggests expanding the Disability Supports Deduction (DSD), allowing individuals with impairments to deduct expenses aiding in income generation or education. It proposes to broaden recognized expenses for severe and prolonged physical or mental impairments, including vision impairments and costs for service animals. Taxpayers may claim these expenses under the DSD or as part of a medical expense tax credit.
For Business:
Lifetime Capital Gains Exemption
The 2024 federal budget aims to boost the Lifetime Capital Gains Exemption (LCGE), which currently shields individuals from taxes on capital gains from qualified small business corporation (QSBC) shares and qualified farm or fishing property (QFFP) disposals. It suggests raising the LCGE from $1,016,836 to $1.25 million for disposals occurring on or after June 25, 2024. Additionally, indexation of the exemption amount will recommence in 2026 and subsequent years.
Canadian Entrepreneurs’ Incentive
The 2024 federal budget introduces the Canadian Entrepreneurs’ Incentive (CEI), aiming to halve the capital gains inclusion rate for eligible individuals upon the disposal of qualifying shares, starting from January 1, 2025. The lifetime limit for this incentive will incrementally increase by $200,000 annually from January 1, 2025, to January 1, 2034, reaching a maximum of $2 million. If subject to the proposed two-thirds capital gains inclusion rate, this incentive would reduce the rate to one-third for qualifying share dispositions. Additionally, this measure will complement any existing lifetime capital gains exemption.
Accelerated Capital Cost Allowance
The 2024 federal budget proposes increasing the Capital Cost Allowance (CCA) rate from 4% to 10% for new eligible purpose-built rental housing. To qualify, construction must commence after April 15, 2024, and before January 1, 2031, with the property available before January 1, 2036.
Canada Carbon Rebate for Small Businesses
The budget introduces the Canada Carbon Rebate for Small Businesses, offering eligible corporations an automatic refundable tax credit based on the number of employees in each applicable province. Eligible corporations filing their 2023 tax return by July 15, 2024, can avail themselves of the tax credit for the 2023 taxation year.
If you have any questions regarding the 2024 Federal Budget announcement and how it may impact your portfolio, please do not hesitate to contact us. Your trusted team at Sightline Wealth Management will continue to monitor key economic and inflation data to keep you and your portfolios up to speed.
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