On Tuesday, April 16, 2024, Deputy Prime Minister and Minister of Finance Chrystia Freeland unveiled the key measures of the 2024 Federal Budget: Fairness for Every Generation. To help you navigate the details, we’ve compiled the top ten key takeaways you should be aware of.
Capital Gain Inclusion Rate
The higher capital gain inclusion rate will also apply on qualifying employee stock option benefits that are entitled to the stock option deduction. The lower inclusion rate of 1/2 will still be available on the first $250,000 of eligible stock option benefits realized (this $250,000 threshold, however, must be shared with capital gains incurred by the individual).
For tax years that straddle the effective date of June 25, 2024, two different inclusion rates would apply. As such, capital gains and losses will need to be separately identified for these tax years. The annual $250,000 threshold for individuals would still be fully available in 2024 such that there is no requirement to prorate the threshold, and would apply only in respect of net capital gains realized on or after June 25, 2024.
The proposed new capital gains tax rates are expected to prompt Canadians to realize gains earlier to benefit from lower taxes. Canadians typically pay taxes on capital gains when they sell an asset, emigrate from Canada, or pass away. Those holding assets with substantial gains must decide if they should sell before June 25, 2024 to lock in the lower rates.
Alexandra (Ali) Spinner
Partner, Tax
Canadian Entrepreneurs Incentive
Budget 2024 proposes to introduce the Canadian Entrepreneurs’ Inventive (CEI). The CEI would reduce the tax rate on capital gains realized by an eligible individual on the sale of qualifying shares of a business. The inclusion rate for capital gains realized on an eligible sale would be reduced to 1/3 from the current 1/2 inclusion rate.
The CEI would be available to founding investors disposing of qualifying shares in certain sectors, who own at least ten per cent of the shares in their business, and where their principal employment has been with the company for at least five years.
The 1/3 inclusion rate would apply on a lifetime maximum of $2 million of eligible capital gains. The limit will start at $200,000 in 2025 and increase by $200,000 annually, until it reaches $2 million in 2034.
Lifetime Capital Gains Exemption
Changes to Alternative Minimum Tax (AMT)
Budget 2024 puts forward a plan to revise the tax treatment of charitable donations when calculating AMT to allow an individual to claim 80 per cent of the charitable donation tax credit, increased from 50 per cent. This will reduce the potential application of AMT when an individual makes a charitable donation.
Budget 2024 also proposes to fully exempt Employee Ownership Trusts from the AMT. Employee Ownership Trust rules were previously announced by the government in the 2023 Budget.
Home Buyers' Incentives
Budget 2024 intends to increase the Home Buyers Plan (HBP) withdrawal limit from $35,000 to $60,000 for RRSP withdrawals made after April 16, 2024 by individuals purchasing or building their first home.
In addition, Budget 2024 seeks to temporarily defer the start of the 15-year repayment period by an additional three years for qualifying withdrawals made between January 1, 2022 and December 31, 2025.
Accelerated Capital Cost Allowance (CCA)
Canada Carbon Rate
Budget 2024 proposes to return a portion of the fuel charge proceeds from provinces via the new Canada Carbon Rebate for Small Businesses. The rebate will work similarly to the Canada Carbon Rebate that is currently available to individuals.
The refundable tax credit will be automatic, and the amount of the rebate an eligible business will receive will depend on the number of individuals the business employs in the province. The rebate will not be available for large businesses.
Employee Ownership Trust Tax Exemption
Elective Exemption for Interest and Financing Expenses Limitation (EIFEL) Changes for Purpose Built Rentals
Budget 2021 previously announced an earnings stripping measure that limited the amount of interest and financing expenses that can be deducted in computing a taxpayer’s taxable income.
Budget 2024 proposes an elective exemption whereby a taxpayer who uses arm’s length financing to build or acquire eligible purpose-built rental housing in Canada would not be subject to these deductibility limitation rules on interest and financing expenses incurred before January 1, 2036.
This change would apply to tax years that begin on or after October 1, 2023.
Withholding Tax for Non-Resident Service Providers (Regulation 105)
Non-resident service providers in Canada are currently subject to a 15 per cent withholding tax obligation that acts as a pre-payment of any Canadian tax that the non-resident may ultimately owe. Budget 2024 proposes to provide the Canada Revenue Agency (CRA) with legislative authority to waive the withholding requirement over a specified period for payments to a non-resident service provider if:
- The non-resident would not ultimately be subject to Canadian income tax in respect of the payments because of a tax treaty between their country of residence and Canada; or
- The income from providing the services is exempt income from international shipping or from operating an aircraft in international traffic.
Visit our Capital Gains Hub for insights and resources to navigate the upcoming changes confidently.
This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.
Ananth Balasingam
Partner,
Tax
Ananth Balasingam Professional Corporation
Ross Pasceri
Partner,
Tax
Rosario Pasceri Professional Corporation