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2024 Federal Budget Highlights

April 17, 2024

On April 16, 2024, Deputy Prime Minister and Minister of Finance Chrystia Freeland tabled Budget 2024: Fairness for Every Generation. The 2024 Federal Budget (“Budget 2024”) states its focus is “to build more homes, faster, help make life cost less, and grow the economy in a way that helps every generation get ahead.”

Budget 2024 reports an expected deficit of $40.0 billion for this year (2023/2024), and forecasts deficits of $39.8 billion for 2024/2025 and $38.9 billion for 2025/2026. No changes to federal personal or corporate tax rates were announced; however, Budget 2024 proposes to increase the capital gains inclusion rate from one-half to two-thirds.

For Canadian taxpayers, Budget 2024 proposes several measures that are worth noting:

  • An accelerated Capital Cost Allowance for new purpose-built rental projects
  • A new carbon rebate for small businesses
  • The new Canadian Entrepreneurs Incentive, which reduces the tax rate on capital gains on the disposition of qualifying shares by an eligible individual
  • Significant changes to the inclusion rate for capital gains, as well as increases to the Lifetime Capital Gains Exemption
  • Several adjustments to the Alternative Minimum Tax proposals

Keep reading for a deeper dive into these topics as we outline how the new and updated measures in Budget 2024 may impact you.

Capital gains tax changes

Capital gains inclusion rate

Budget 2024 proposes to increase the capital gains inclusion rate from one half to two thirds for corporations and trusts. The inclusion rate for individuals will also increase from one half to two thirds, but only on the portion of capital gains realized in a particular year that exceed $250,000.

These changes will apply to capital gains realized on or after June 25, 2024. Despite these changes being introduced mid-year, individuals will have access to the full $250,000 annual 50% inclusion limit for 2024.

If you’ve been considering disposing of an asset(s) that would cause your personal capital gains to exceed that $250,000 threshold, it may be wise to do so before the new inclusion rate comes into effect. Companies should also consider whether it makes sense to prematurely trigger capital gains before this date, when the inclusion rate rises from one half to two thirds. Contact your DMCL advisor for more information and guidance if you think this applies to you.

Notable personal tax changes

Lifetime capital gains exemption

The Lifetime Capital Gains Exemption (LCGE) limit is $1,016,836 in 2024 and is indexed to inflation. Budget 2024 proposes to increase the LCGE limit to apply to up to $1.25 million of eligible capital gains. This measure would apply to dispositions that occur on or after June 25, 2024, and indexation of the LCGE would resume in 2026.

Alternative minimum tax updates

Budget 2024 proposes several additional amendments to the AMT proposals. These amendments would:

  • Change the treatment of charitable donations to allow individuals to claim 80% of the Charitable Donation Tax Credit, compared to the previous limit of 50%;
  • Fully allow deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation payments;
  • Allow individuals to fully claim the federal logging tax credit under the AMT;
  • Fully exempt Employee Ownership Trusts from the AMT; and,
  • Allow certain disallowed credits under the AMT to be eligible for the AMT carry-forward (i.e., the federal political contribution tax credit, investment tax credits, and labour-sponsored funds tax credit)

Read our article on the proposed new AMT rules for more information.

Canadian Entrepreneurs’ Incentive

Budget 2024 introduces the Canadian Entrepreneurs’ Incentive. This incentive would reduce the tax rate on capital gains on the disposition of qualifying shares by an eligible individual. Specifically, this incentive would provide for a capital gains inclusion rate that is one half the prevailing inclusion rate, on up to $2 million in capital gains per individual over their lifetime.

The lifetime limit would be phased in by increments of $200,000 per year, beginning on January 1, 2025, before ultimately reaching a value of $2 million by January 1, 2034. This measure would apply to dispositions that occur on or after January 1, 2025.

Employee ownership trust tax exemption

The 2023 Fall Economic Statement introduced a proposal to exempt the first $10 million in capital gains from taxation when a business is sold to an Employee Ownership Trust (EOT), provided certain conditions are met.

Budget 2024 elaborates on these conditions and the scope of the proposed exemption. The exemption is designed for individuals selling shares to an EOT under a qualifying business transfer arrangement. The trust acquiring the shares should not be an existing EOT or similar trust with employee beneficiaries. Additionally, the seller, their spouse, or common-law partner must have been actively and consistently involved in the business for at least 24 months prior to the sale.

Mineral Exploration Tax Credit

This tax credit provides support to junior mining companies engaged in certain grassroots mineral exploration. The credit is equal to 15% of the specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors.

The Mineral Exploration Tax Credit was legislated to expire on March 31, 2024. As announced on March 28, the government proposes to extend eligibility for one year to flow-through share agreements entered into on or before March 31, 2025.

Increases to the Home Buyers’ Plan

Budget 2024 includes a proposal to raise the limit of the Home Buyers’ Plan from $35,000 to $60,000. This change is designed to enhance the purchasing power of first-time homebuyers by increasing the amount they can withdraw from their Registered Retirement Savings Plans (RRSPs) to finance their initial home purchase. This adjustment would be relevant for the 2024 tax year and beyond, impacting withdrawals made following the announcement on Budget Day.

Additionally, for those who access their Home Buyers’ Plan between January 1, 2022, and December 31, 2025, the budget suggests extending the initial repayment grace period by three years. Consequently, first-time homebuyers would benefit from up to five years before they need to begin repaying the withdrawn amounts.

Notable business tax changes

Accelerated capital cost allowance

The capital cost allowance (CCA) system determines the deductions that a business may claim each year for income tax purposes in respect of the capital cost of its depreciable property. Budget 2024 proposes to provide an accelerated CCA of 10% for new eligible purpose-built rental projects that begin construction on or after Budget Day and before January 1, 2031, and are available for use before January 1, 2036.

Consistent with eligibility under the temporary enhancement to the Goods and Services Tax (GST) New Residential Rental Property Rebate, eligible property would be new purpose-built rental housing that is a residential complex:

  • With at least four private apartment units (i.e., a unit with a private kitchen, bathroom, and living areas), or 10 private rooms or suites; and,
  • In which at least 90%of residential units are held for long-term rental

Projects that convert existing non-residential real estate, such as an office building, into a residential complex would be eligible if the conditions above are met. The accelerated CCA would not apply to renovations of existing residential complexes. However, the cost of a new addition to an existing structure would be eligible, provided that addition meets the conditions above.

Immediate expensing for productivity-enhancing assets

Budget 2024 introduces measures to accelerate investment in capital assets by allowing for the immediate expensing of certain types of property newly added to the following Capital Cost Allowance (CCA) classes:

  • Class 44: Patents and the rights to utilize patented information.
  • Class 46: Data network infrastructure equipment and accompanying systems software.
  • Class 50: General-purpose electronic data-processing equipment and systems software.

This provision will apply to assets acquired from Budget Day and that are ready for use by the end of 2026. However, purchases from non-arm’s length persons or transactions that are transferred under tax-deferral conditions will not qualify for this benefit.

Canada Carbon Rebate for Small Businesses

Budget 2024 outlines a plan to redistribute a portion of the revenue generated from fuel charges back to Indigenous governments and small to medium-sized enterprises (SMEs) through the newly established Canada Carbon Rebate for Small Businesses. This initiative will provide an automatic, refundable tax credit to qualifying businesses, with the amount of the rebate correlating to the number of employees they have in each province.

Eligibility for this rebate extends to Canadian-Controlled Private Corporations (CCPCs) that submit their tax returns for the 2023 tax year by July 15, 2024. To qualify, businesses must have maintained a workforce of fewer than 500 employees across Canada in the calendar year that marks the start of the applicable fuel charge year, covering the period from 2019-2020 to 2023-2024.

Clean Electricity Investment Tax Credit

The Clean Electricity investment tax credit is a refundable tax credit equal to 15% of the capital cost of eligible electricity-generating activities and equipment. It will only be available to Canadian corporations. Eligible corporations would be:

  • Taxable Canadian corporations;
  • Provincial and territorial Crown corporations, subject to additional requirements (see section “Proposed Application to Provincial and Territorial Crown Corporations”);
  • Corporations owned by municipalities;
  • Corporations owned by Indigenous communities; and,
  • Pension investment corporations

The Clean Electricity investment tax credit would apply to eligible property that is:

  • Acquired and becomes available for use on or after Budget Day and before 2035, provided it has not been used for any purpose before its acquisition; and,
  • Not part of a project that began construction before March 28, 2023. For this purpose, construction would not include obtaining permits or regulatory approval, conducting environmental assessments, community consultations or impact assessment studies, or similar activities

In order to receive the tax credit, corporations with a claim to immunity or exemption from tax would be required to agree to be subject to the provisions of the Income Tax Act related to the tax credit, including provisions related to audit, penalties and collections, and agree not to assert any immunity or exemption in respect of the tax credit.

If a particular expenditure is eligible for more than one of the following tax credits, eligible corporations would be able to claim only one of:

  • The Clean Electricity Investment Tax Credit;
  • The Clean Technology Investment Tax Credit;
  • The Carbon Capture, Utilization, and Storage Investment Tax Credit;
  • The Clean Hydrogen Investment Tax Credit;
  • The Clean Technology Manufacturing Investment Tax Credit; or,
  • The Electric Vehicle Supply Chain Investment Tax Credit

However, multiple tax credits could be available for the same project, to the extent that the project includes expenditures eligible for different tax credits.

Contact your DMCL advisor for more information on the details outlined in the 2024 Federal Budget and how their measures might apply to you and your business. If you live in B.C., be sure to read through our 2024 BC Budget Highlights article as well to ensure you’re ready for any new or changed tax requirements at the provincial level as well.