The 2024 Federal Fall Economic Update was presented on December 16, 2024 by Government House Leader, Karina Gould.
The following is a summary of the federal government’s most relevant proposed tax measures in its 2024 Fall Economic Statement.
Personal Income Tax Measures
Exempting the Canada Disability Benefit from Tax
The Canada Disability Benefit is a new program under which the Government of Canada intends to provide up to $2,400 annually to support low-income, working-age Canadians, who are eligible for the Disability Tax Credit, beginning in July 2025.
The 2024 Fall Economic Statement proposes to exempt amounts received under the Canada Disability Benefit from income under the Income Tax Act. This would help ensure that income-tested benefits and programs are not reduced as a result of payments under the Canada Disability Benefit.
This measure would apply to the 2025 and subsequent taxation years.
The 2024 Fall Economic Statement proposes to exempt amounts received under the Canada Disability Benefit from income under the Income Tax Act. This would help ensure that income-tested benefits and programs are not reduced as a result of payments under the Canada Disability Benefit.
This measure would apply to the 2025 and subsequent taxation years.
Capital Gains Rollover on Investments
Under the Income Tax Act, individuals are allowed to defer taxation on capital gains realized on the qualifying disposition of Eligible Small Business Corporation (ESBC) shares to the extent that proceeds from the disposition are used to acquire replacement ESBC shares within the year of disposition, or up to 120 days following that year. To qualify as an ESBC share, a share must be a common share issued by an ESBC to the individual and the total carrying value of the assets of the ESBC and related corporations must not exceed $50 million immediately before and immediately after the share was issued.
The 2024 Fall Economic Statement proposes to increase the period to acquire replacement shares and to expand what qualifies as an ESBC share. First, the period to acquire replacement shares would be expanded to encompass the year of disposition and the entire calendar year after the year of disposition. Second, an ESBC share would include both common and preferred shares. Finally, the limit to the carrying value of the assets of the ESBC and related corporations would be increased to $100 million.
These changes would be effective for qualifying dispositions that occur on or after January 1, 2025.
The 2024 Fall Economic Statement proposes to increase the period to acquire replacement shares and to expand what qualifies as an ESBC share. First, the period to acquire replacement shares would be expanded to encompass the year of disposition and the entire calendar year after the year of disposition. Second, an ESBC share would include both common and preferred shares. Finally, the limit to the carrying value of the assets of the ESBC and related corporations would be increased to $100 million.
These changes would be effective for qualifying dispositions that occur on or after January 1, 2025.
Reporting by Non-profit Organizations
The Income Tax Act provides an exemption from income tax for organizations that meet the definition of a non-profit organization (NPO). Generally, an NPO is any club, society or association that is organized for social welfare, civic improvement, pleasure or recreation or any other purpose except profit. Charities are exempt from income tax under separate rules.
Currently, there is limited reporting required by NPOs that claim an income tax exemption. An NPO is required to file an annual information return if:
- the total of all passive income in the fiscal period exceeds $10,000;
- the organization’s total assets at the end of the preceding fiscal period exceeded $200,000; or,
- an information return was required to be filed by the organization for a preceding fiscal period.
The 2024 Fall Economic Statement proposes to amend the Income Tax Act to require NPOs with total gross revenues over $50,000 to also file the annual NPO information return.
The 2024 Fall Economic Statement also proposes to amend the Income Tax Act to require NPOs that do not meet the thresholds for filing the annual NPO information return to file a new, short-form return that contains basic information about the organization, including:
- its business number or trust number;
- the name of the organization and its mailing address;
- the names and addresses of the directors, officers, trustees or similar officials;
- a description of the organization’s activities, including whether it conducts activities outside Canada;
- the organization’s total assets and liabilities and annual revenues; and,
- other prescribed information.
These measures would apply to the 2026 and subsequent taxation years.
Business Income Tax Measures
Canada Carbon Rebate for Small Businesses
In provinces like Ontario, where the fuel charge applies, a portion of fuel charge proceeds from the price on pollution will be returned to eligible small- and medium-sized businesses via the Canada Carbon Rebate for Small Businesses, an automatic, refundable tax credit provided directly to eligible businesses. This rebate does not apply in Quebec.
The Canada Carbon Rebate for Small Businesses will generally be available to Canadian-controlled private corporations (CCPCs) that had 499 or fewer employees in Canada throughout the calendar year in which the applicable fuel charge year began.
The tax credit amount is equal to the number of persons employed by the eligible corporation in the province in that calendar year multiplied by a payment rate specified by the Minister of Finance for the province for the corresponding fuel charge year. The government has also announced that this rebate would not be included in the taxable income of eligible businesses.
The 2024 Fall Economic Statement proposes to modify certain elements of the design of the tax credit for the 2024-25 and later fuel charge years. The 2024-25 fuel charge year corresponds to the 2024 calendar year for the purpose of testing the number of employees.
The Canada Carbon Rebate for Small Businesses will generally be available to Canadian-controlled private corporations (CCPCs) that had 499 or fewer employees in Canada throughout the calendar year in which the applicable fuel charge year began.
The tax credit amount is equal to the number of persons employed by the eligible corporation in the province in that calendar year multiplied by a payment rate specified by the Minister of Finance for the province for the corresponding fuel charge year. The government has also announced that this rebate would not be included in the taxable income of eligible businesses.
The 2024 Fall Economic Statement proposes to modify certain elements of the design of the tax credit for the 2024-25 and later fuel charge years. The 2024-25 fuel charge year corresponds to the 2024 calendar year for the purpose of testing the number of employees.
Clean Electricity Investment Tax Credit and the Canada Infrastructure Bank
The Clean Electricity investment tax credit is a refundable credit equal to 15 per cent of the capital cost of eligible investments in equipment related to low-emitting electricity generation, electricity storage, and the transmission of electricity between provinces and territories.
The 2024 Fall Economic Statement proposes to include the Canada Infrastructure Bank as an eligible entity under the Clean Electricity investment tax credit and also introduce an exception so that any financing provided by the Canada Infrastructure Bank would not reduce the cost of eligible property for the purpose of computing the Clean Electricity investment tax credit.
These measures would apply to eligible property that is acquired and that becomes available for use on or after the day of the 2024 Fall Economic Statement.
EV Supply Chain Investment Tax Credit
Budget 2024 announced a refundable electric vehicle (EV) Supply Chain investment tax credit equal to 10 per cent of the capital cost of eligible building property used in qualifying EV supply chain segments. This measure would incentivize companies to build important parts of the EV manufacturing supply chain in Canada, where the materials, expertise, and workforce exist to be a global leader in this growing industry. The 2024 Fall Economic Statement provides the design and implementation details of the credit.
The EV Supply Chain investment tax credit would be available only to taxable Canadian corporations that invest directly in eligible property. The credit would not be available for investments made by partnerships or trusts.
The EV Supply Chain investment tax credit would be available for buildings and structures, including their component parts.
The EV Supply Chain investment tax credit would apply to property that is acquired and becomes available for use on or after January 1, 2024. The credit rate would be reduced to 5 per cent for property that becomes available for use in 2033 or 2034. The credit would no longer be in effect for property that becomes available for use after 2034. Other design elements would generally be based on those of the Clean Technology Manufacturing investment tax credit, where applicable.
Clean Hydrogen Investment Tax Credit – Methane Pyrolysis
The Clean Hydrogen investment tax credit is a refundable tax credit that supports the cost of eligible equipment used in clean hydrogen production. Support varies between 15 to 40 per cent of eligible expenses based on the hydrogen's assessed carbon intensity, with projects that produce the cleanest hydrogen receiving the highest levels of support. Equipment used to convert clean hydrogen to ammonia may also be eligible for a 15-per-cent tax credit. Labour requirements must be met to receive maximum credit rates.
The 2024 Fall Economic Statement proposes that the Clean Hydrogen investment tax credit be expanded to include methane pyrolysis as an eligible production pathway.
The expansion of the Clean Hydrogen investment tax credit would apply in respect of property that is acquired and becomes available for use in an eligible project on or after the day of the 2024 Fall Economic Statement.
Scientific Research and Experimental Development Tax Incentive Program
Under the Scientific Research and Experimental Development (SR&ED) tax incentive program, qualifying expenditures are fully deductible in the year they are incurred. In addition, these expenditures are generally eligible for an investment tax credit. The rate and level of refundability of the credit vary depending on the characteristics of the taxpayer, including its legal status and its size. In general terms:
- For Canadian-controlled private corporations (CCPCs), a fully refundable enhanced tax credit at a rate of 35 per cent is available on up to $3 million of qualifying SR&ED expenditures annually. The $3 million expenditure limit for a taxation year is gradually phased out based on prior-year taxable capital, which applies on the basis of an associated group. The expenditure limit is gradually reduced where taxable capital employed in Canada for the previous taxation year is between $10 million and $50 million.
- Qualifying expenditures in excess of a CCPC's expenditure limit are eligible for the 15 per cent tax credit. Under certain conditions, these credits can be partially refundable.
- For most corporations other than CCPCs, a 15 per cent non-refundable tax credit is available on qualified SR&ED expenditures. Unincorporated businesses, individuals, and certain trusts have access to a 15 per cent partially refundable tax credit on qualified SR&ED expenditures.
The 2024 Fall Economic Statement proposes to increase the expenditure limit on which the enhanced 35 per cent rate can be earned from $3 million to $4.5 million.
The taxable capital phase-out thresholds for determining the expenditure limit would also be increased from $10 million and $50 million to $15 million and $75 million, respectively.
Canadian Public Corporations
The 2024 Fall Economic Statement also proposes to extend eligibility for the enhanced refundable tax credit to eligible Canadian public corporations.
Election for CCPCs
Instead of determining eligibility based on taxable capital, CCPCs would have the option to elect to have their expenditure limit for the enhanced SR&ED credit determined based on the same gross revenue phase-out structure proposed for Canadian public corporations.
The proposed new rules to determine eligibility for the enhanced SR&ED credit would apply for taxation years that begin on or after the date of the 2024 Fall Economic Statement.
Extension of the Accelerated Investment Incentive and Immediate Expensing Measures
The Accelerated Investment Incentive, which provides an enhanced first-year capital cost allowance (CCA) for most depreciable capital property, began phasing out in 2024 and is set to be fully eliminated after 2027. Immediate Expensing Measures for manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment, and zero-emission vehicles are also currently phasing out on the same timeline.
The 2024 Fall Economic Statement proposes to fully re-instate the Accelerated Investment Incentive and Immediate Expensing Measures for a five-year period, with a four-year phase-out after 2029.
Previously Announced Measures
The 2024 Fall Economic Statement confirms the government's intention to proceed with previously announced tax and related measures, as modified to take into account consultations and deliberations since their release.
The government has notably confirmed its intention to move forward with the legislative proposals related to capital gains and the lifetime capital gains exemption, included in the notice of ways and means motion tabled on September 23, 2024
The 2024 Fall Economic Statement also reaffirms the government's commitment to move forward as required with other technical amendments to improve the certainty and integrity of the tax system.
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