Today, on April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, unveiled the 2024 federal budget.
The budget projects a deficit of $40.0 billion for 2023-24, followed by deficits of $39.8 billion for 2024-25 and $38.9 billion for 2025-26. While there are no changes to federal personal or corporate tax rates, the Finance Minister announced an increase in the inclusion rate for capital gains realized on or after June 25, 2024, under specific conditions.
This increase will be to 2/3 for corporations and trusts, and also to 2/3 for individuals on capital gains exceeding $250,000 in a year. Additionally, the Finance Minister outlined enhancements to the Lifetime Capital Gains Exemption, raising it to $1.25 million, and introduced a temporary tax exemption on up to $10 million in capital gains for businesses sold to an Employee Ownership Trust (EOT).
Here’s everything you need to know:
Alternative Minimum Tax:
The proposed AMT regime amendments from Budget 2023 will proceed with adjustments. The donation tax credit under AMT will increase to 80% of the regular income tax credit to address concerns for philanthropic individuals. Exemptions are proposed for certain Indigenous group trusts. No changes were made for smaller trusts or the 50% deductible on property income for AMT purposes as per the 2023 proposal.
You can read the full federal budget here. If you have any questions about the new tax changes, don’t hesitate to get in touch with your Empire CPA partner.
The budget projects a deficit of $40.0 billion for 2023-24, followed by deficits of $39.8 billion for 2024-25 and $38.9 billion for 2025-26. While there are no changes to federal personal or corporate tax rates, the Finance Minister announced an increase in the inclusion rate for capital gains realized on or after June 25, 2024, under specific conditions.
This increase will be to 2/3 for corporations and trusts, and also to 2/3 for individuals on capital gains exceeding $250,000 in a year. Additionally, the Finance Minister outlined enhancements to the Lifetime Capital Gains Exemption, raising it to $1.25 million, and introduced a temporary tax exemption on up to $10 million in capital gains for businesses sold to an Employee Ownership Trust (EOT).
A key focus of this year’s budget is improving housing affordability, with initiatives aimed at incentivizing purpose-built rental housing in Canada. These incentives include an elective exemption from the interest deductibility limitation and enhanced Capital Cost Allowance (CCA) for specific new property additions.
Empire CPA has put together a summary detailing the key tax changes announced that are essential for you to be aware of.
Here’s everything you need to know:
Capital Gains Inclusion Rate:
Effective for dispositions on and after June 25, 2024, the inclusion rate will increase from 50% to 2/3. For taxation years that span this date, the inclusion rate will vary based on the disposition date. Individuals (excluding trusts) will maintain the 50% inclusion rate for the first $250,000 of capital gains per year (or for the period from June 25 to December 31, 2024). Other taxpayers, such as corporations and trusts, will face a 2/3 inclusion rate for all capital gains. Similar adjustments will apply to stock option benefits and carried-back or carried-forward capital losses.
Effective for dispositions on and after June 25, 2024, the inclusion rate will increase from 50% to 2/3. For taxation years that span this date, the inclusion rate will vary based on the disposition date. Individuals (excluding trusts) will maintain the 50% inclusion rate for the first $250,000 of capital gains per year (or for the period from June 25 to December 31, 2024). Other taxpayers, such as corporations and trusts, will face a 2/3 inclusion rate for all capital gains. Similar adjustments will apply to stock option benefits and carried-back or carried-forward capital losses.
Lifetime Capital Gains Exemption:
The lifetime limit will be increased to $1,250,000 from its present level of $1,016,836, effective for dispositions on and after June 25, 2024. This amount will be indexed for inflation commencing in 2026.
The lifetime limit will be increased to $1,250,000 from its present level of $1,016,836, effective for dispositions on and after June 25, 2024. This amount will be indexed for inflation commencing in 2026.
Canadian Entrepreneurs’ Incentive:
Starting in 2025, certain shares will qualify for a reduced capital gains inclusion rate of 25% or 1/3. The eligibility criteria will be stricter than those for the lifetime capital gains exemption. For instance, the taxpayer must have been a founding shareholder with a substantial interest (over 10% of votes and value), owning and actively participating in the business for at least five consecutive years leading up to the sale.
Starting in 2025, certain shares will qualify for a reduced capital gains inclusion rate of 25% or 1/3. The eligibility criteria will be stricter than those for the lifetime capital gains exemption. For instance, the taxpayer must have been a founding shareholder with a substantial interest (over 10% of votes and value), owning and actively participating in the business for at least five consecutive years leading up to the sale.
Employee Ownership Trust Tax Exemption:
Individuals selling shares to an employee ownership trust in a qualifying business transfer between January 1, 2014, and December 31, 2026, can claim a $10 million capital gains exemption per transfer, per Fall Economic Statement 2023. Additional criteria apply, including active engagement in the business for 24 months by the vendor or their spouse. Multiple vendors must split the $10 million limit, and “disqualifying events” within 36 months post-transfer could reverse the exemption.
Individuals selling shares to an employee ownership trust in a qualifying business transfer between January 1, 2014, and December 31, 2026, can claim a $10 million capital gains exemption per transfer, per Fall Economic Statement 2023. Additional criteria apply, including active engagement in the business for 24 months by the vendor or their spouse. Multiple vendors must split the $10 million limit, and “disqualifying events” within 36 months post-transfer could reverse the exemption.
Canada Disability Benefit:
Payments to eligible Canadians would begin in July 2025, following the successful completion of the regulatory process and consultations with persons with disabilities. A maximum benefit amount of $2,400 per year would be available for individuals between the ages of 18 and 64 eligible for the disability tax credit.
Payments to eligible Canadians would begin in July 2025, following the successful completion of the regulatory process and consultations with persons with disabilities. A maximum benefit amount of $2,400 per year would be available for individuals between the ages of 18 and 64 eligible for the disability tax credit.
Alternative Minimum Tax:
The proposed AMT regime amendments from Budget 2023 will proceed with adjustments. The donation tax credit under AMT will increase to 80% of the regular income tax credit to address concerns for philanthropic individuals. Exemptions are proposed for certain Indigenous group trusts. No changes were made for smaller trusts or the 50% deductible on property income for AMT purposes as per the 2023 proposal.
Canada Carbon Rebate for Small Businesses:
An expedited and automated process will offer direct carbon rebates (a refundable tax credit) to CCPCs in provinces under the federal fuel charge (Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador). The rebate, based on provincial employment numbers, requires corporations to have fewer than 499 employees nationwide in the relevant year. Payment rates for 2019-20 to 2023-24 will be disclosed after gathering adequate data from the 2023 taxation year.
An expedited and automated process will offer direct carbon rebates (a refundable tax credit) to CCPCs in provinces under the federal fuel charge (Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador). The rebate, based on provincial employment numbers, requires corporations to have fewer than 499 employees nationwide in the relevant year. Payment rates for 2019-20 to 2023-24 will be disclosed after gathering adequate data from the 2023 taxation year.
Accelerated CCA:
Starting April 16, 2024, an accelerated CCA rate of 10% will apply to new eligible purpose-built rental projects that begin construction before January 1, 2031. Eligible properties must be residential complexes with at least four private apartment units or 10 private rooms or suites, with 90% of units held for long-term rental. Additionally, immediate 100% CCA expensing is available for new property additions in classes 44, 46, and 50 if acquired by April 16, 2024, and used before January 1, 2027.
Starting April 16, 2024, an accelerated CCA rate of 10% will apply to new eligible purpose-built rental projects that begin construction before January 1, 2031. Eligible properties must be residential complexes with at least four private apartment units or 10 private rooms or suites, with 90% of units held for long-term rental. Additionally, immediate 100% CCA expensing is available for new property additions in classes 44, 46, and 50 if acquired by April 16, 2024, and used before January 1, 2027.
You can read the full federal budget here. If you have any questions about the new tax changes, don’t hesitate to get in touch with your Empire CPA partner.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.