The federal government released its fall economic statement (FES) on December 16, 2024 despite the resignation of Finance Minister Chrystia Freeland the same day. The economic statement details the government's plan to lower everyday costs and foster economic growth to increase wages, ultimately putting more money in the pockets of Canadians.
In today’s fall economic statement, the government announced these initiatives:
The SR&ED Program provides incentives to businesses who conduct eligible research and development (R&D) in Canada.
SR&ED expenditures are deductible by a business against its income.
At the federal level, the current SR&ED program allows a non-refundable investment tax credit (ITC) at a rate of 15 per cent on eligible R&D expenditures in Canada. Canadian-controlled Private Corporations (CCPCs) are entitled to an enhanced refundable ITC at a rate of 35 per cent on eligible R&D expenditures in Canada on up to $3 million of expenditures annually. Currently, a phase-out of the refundable ITC applies where taxable capital from the prior year exceeds $10 million and is fully phased-out where taxable capital from the prior year exceeds $50 million.
The 2024 Fall Economic Statement is proposing the following:
With respect to the expansion of the enhanced refundable credit to Canadian public corporations, access to the $4.5 million expenditure limit would be phased out based on the corporation’s gross revenue. The expenditure limit would be reduced on a straight-line basis where the corporation’s average gross revenue over the three preceding years is between $15 million and $75 million. Where the corporation is part of a corporate group, gross revenue is the amount reported in the annual financial statements of the corporate group presented to shareholders at the highest level of consolidation. Members of a corporate group for financial reporting purposes will be required to share access to the enhanced expenditure limit.
CCPCs will have the option to elect to have their expenditure limit for the enhanced refundable credit be determined based on the gross revenue phase-out structure proposed for Canadian public corporations, as opposed to the taxable capital phase-out structure.
These proposed rules would apply for tax years that begin on or after December 16, 2024.
The Accelerated Investment Incentive (AII) currently provides an enhanced first-year capital cost allowance (CCA) for most depreciable capital property. Under the AII, eligible property that would normally be subject to the half-year rule qualified for an enhanced CCA equal to three times the normal first-year deduction. This measure began to be phased out for property that became available for use after 2023, whereby the benefit was reduced to two times the normal first-year CCA deduction. The phase-out period is currently set for 2024-2027, after which the benefit will be no longer available.
The 2024 Fall Economic Statement proposes to reinstate the AII for a five-year period for property acquired on or after January 1, 2025 that becomes available for use before 2030, with a four-year phase-out period beginning in 2030.
Immediate expensing measures previously introduced for eligible manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment, and zero-emission vehicles provided a 100 per cent deduction for eligible property that became available for use before 2024. These immediate expensing measures are also currently set to phase out over the same timeline as the AII (2024-2027).
The 2024 Fall Economic Statement proposes to reinstate these immediate expensing measures for qualifying property acquired on or after January 1, 2025, that becomes available for use before 2030. These immediate expensing measures would be phased out starting in 2030 and fully eliminated for property that becomes available for use after 2033.
Individuals are currently able to defer the taxation on a capital gain realized on a qualifying disposition of Eligible Small Business Corporation (ESBC) shares when the proceeds received on the disposition are used to acquire replacement ESBC shares within the calendar year of disposition, or up to 120 days following that year.
An ESBC is defined as a corporation that is a Canadian-controlled private corporation, all or substantially all of the fair market value of the assets of which at that time are attributable to assets of the corporation that are:
(a) Used principally in an active business carried on primarily in Canada by the corporation (or by an ESBC that is related to the corporation);
(b) Shares issued or debt owing by other ESBCs that are related to the corporation; or
(c) A combination of assets described in (a) and (b) above.
*An ESBC does not include a corporation that is a professional corporation, a specified financial institution, a corporation the principal business of which is the leasing, rental, development or sale (or any combination of those activities) of real or immovable property owned by it, or a corporation for which more than 50 per cent of the fair market value of the property held by it is attributable to real or immovable property.
Currently, to qualify for the capital gains deferral, the ESBC 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 is proposing the following:
These changes would be effective for qualifying dispositions that occur on or after January 1, 2025.
Currently, in addition to the base rebate amount for individuals, a 20 per cent rural supplement is available to individuals living outside a Census Metropolitan Area (CMA), as designated by Statistics Canada, in a province that contains a CMA.
The 2024 Fall Economic Statement proposes to expand eligibility for the rural supplement to individuals who, within a CMA, reside in a census rural area (less than 1,000 individuals) or a small population centre (less than 30,000 individuals) as designated by Statistics Canada. The Canada Revenue Agency will be developing guidance and tools to help Canadians determine their eligibility.
The proposed changes would apply starting with the 2024 taxation year (the first payment of which will be made in April 2025).
The rebate for small business is currently available to CCPCs that had 499 or fewer employees in Canada throughout eligible years.
The 2024 Fall Economic Statement is proposing the following changes, starting with the 2024-2025 fuel charge year:
Currently, an NPO is required to file an annual information return if one of the following conditions are met:
The 2024 Fall Economic Statement proposes to require NPOs with total gross revenues over $50,000 to also file the annual NPO return.
In addition, the 2024 Fall Economic Statement proposes to require NPOs that do not meet the thresholds above to file a new, short-form return that contains basic information about the organization, such as the names and addresses of directors/officers/trustees and a description of the organization’s activities, amongst other required disclosures.
These measures are proposed to come into effect for 2026 and subsequent tax years.
From updates to SR&ED tax credits and their implications for public corporations to the reinstatement of the Accelerated Investment Incentive, Ali provides valuable insights into what these changes mean for Canadian businesses and individuals alike.
To know how these initiatives will affect your personal and business affairs, schedule a consultation with a Crowe Soberman advisor.
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.
