2024 Federal Budget Highlights

On April 16, 2024, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, presented the federal budget for the 2024-2025 fiscal year. We have summarized selected highlights of the personal and business tax measures.

INDIVIDUALS

Personal Tax Rates

The budget did not propose any changes to individual income tax rates other than the alternative minimum tax rates discussed later.

Based on known rates at April 16, 2024

Changes to the Capital Gains Inclusion Rate for Corporations, Individuals and Trusts

• The budget proposes to increase the capital gains inclusion rate from one half (50%) to two thirds (66.67%) for corporations and trusts on all capital gains.
• For individuals, the increase of the capital gains inclusion rate from one half (50%) to two thirds (66.67%) apply to capital gains realized in the year that exceed $250,000 for gains realized on or after June 25, 2024.
• The $250,000 is not prorated for individuals in 2024 to reflect the partial period of the year that the threshold is in effect.
• The $250,000 threshold would apply net of any capital losses from current or other years, and capital gains in respect of the lifetime capital gains exemption, the proposed employee ownership trust exemption or the proposed Canadian Entrepreneurs’ Incentive.
• Net capital losses from prior years would continue to be deductible in against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset.
• Special rules apply to claimants of the employee stock option deduction and in relation to separating capital gains incurred in 2024, before and after June 24, 2024.

Lifetime Capital Gains Exemption (LCGE)

• The budget proposes to increase the LCGE on eligible capital gains from $1,016,836 to $1,250,000 for dispositions that occur on or after June 25, 2024.
• The indexing of the LCGE to inflation will resume in 2026.

Canadian Entrepreneurs’ Incentive

• The budget proposes to introduce the Canadian Entrepreneurs’ Incentive which will reduce the tax rate on capital gains on the disposition of qualifying shares by eligible individuals.
• The incentive would provide for an inclusion rate that is half of the prevailing inclusion rate, on up to $2 million in capital gains per individual over their lifetime.
• Under the two thirds capital gains inclusion rate proposed in the budget, this would result in an inclusion rate of one third for qualifying dispositions.
• The lifetime limit would be phased in by increments of $200,000 per year, beginning on January 1, 2025, before reaching the $2 million value by January 1, 2034.
• The shares themselves and the claimant must meet a number of conditions, including being a share of a CCPC small business corporation, and having to meet specific holding period and asset use tests, which are outlined in the budget.
• More information about the Canadian Entrepreneurs Incentive is contained within the budget, and the measure would apply to dispositions that occur on or after January 1, 2025.

Amendments to Previously Proposed Alternative Minimum Tax Changes

• The budget proposes to make further changes to the original AMT proposals, as described in Budget 2023 and summarized by Raymond James in the following page: 2024 AMT Changes - Could You Be Impacted? (raymondjames.ca)
• These amendments would apply to taxation years that begin on or after January 1, 2024, the same day that the broader AMT amendments were previously proposed to apply.
• The further amendments to the AMT proposals include:
• Allowing individuals to claim 80% of charitable donation tax credits when calculating AMT, instead of the previously proposed 50%.
• Fully allowing the deduction of the following payments when calculating AMT, of where the previous proposal seeked to disallow 50% of:
• deduction for workers’ compensation payments
• deduction for social assistance payments
• deduction for Guaranteed Income Supplement and Allowance payments
• Individuals will be able to fully claim the federal logging tax credit until the AMT, rather than it being limited.
• Allowing 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).
• The budget also proposed to provide an exemption from AMT for certain trusts for the benefit of Indigenous Groups.

Increase to RRSP Home Buyers Plan (HBP) Withdrawal Limits

• The budget increases the HBP limit by $25,000, allowing first-time home buyers to withdraw up to $60,000 (rather than $35,000) from their RRSPs.
• The budget also offers temporary repayment relief for those who have made or will make a HBP withdrawal between January 1, 2022 and December 31, 2025.
• Under the temporary repayment relief, taxpayers will be granted an additional three years, for a total of five years, before they need to begin making repayments to their RRSP. The 15 year repayment period would start the 5th year after the withdrawal was made.

Deduction for Tradespeople’s Travel Expenses

• Eligible tradespeople and apprentices in the construction industry are currently able to deduct up to $4,000 in eligible travel and relocation expenses per year by claiming the labour mobility deduction for tradespeople.
• A private member’s bill was introduced (Bill C-241) to enact an alternative deduction for certain travel expenses of tradespeople in the construction industry, with no cap on expenses, retroactive to the 2022 taxation year.
• The budget announces that the government will consider bringing forward amendments to the ITA to provide a single, harmonized deduction for tradespeople’s travel that respects the intent of Bill C-241.

Volunteer Firefighters and Search and Rescue Volunteers Tax Credits

• The budget proposes to double the credit base from $3,000 to $6,000, for volunteer firefighters and search and rescue volunteers who have performed at least 200 hours of combined volunteer service during the year.
• The 15% federal non-refundable tax credit enhancement would apply to 2024 and subsequent taxation years.

Disability Supports Deduction Expansion

• The budget proposes to expand the list of expenses recognized under the Disability Supports Deduction, which allows individuals who have an impairment in physical or mental functions to deduct certain expenses that enable them to earn business or employment income or to attend school.
• The expanded expenses are subject to specific conditions and are dependent on the specific type of impairment a taxpayer experiences, and can include costs of an ergonomic work chair, a bed positioning device, a mobile computer part, alternative devices to allow the individual to use a computer, navigation aids for low vision, and purchasing memory or organizational aids.
• Expenses for support animals, as defined in the Medical Expense Tax Credit rules, can be recognized under the Disability Supports Deduction.

Canada Child Benefit (CCB) – Extension of Benefits Following Death

• Under the current rules, delays in receiving notification of a child’s death may result in the clawback of CCB payments in respect of the deceased child for a few months after their death.
• The budget proposes to amend the Income Tax Act to extent eligibility for the CCB in respond of a child for 6 months after the child’s death.
• This measure would be effective for deaths that occur after 2024.

Qualified Investments for Registered Plans

• Currently, the qualified investment rules for registered plans such as RRSP, RRIFs, TFSA, RESPs, RDSPs, FHSAs, and DPSPs, can be complex and result in inconsistent treatment between different various accounts.
• Budget 2024 invites stakeholders to provide suggestions on how the qualified investment rules could be modernized on a prospective basis to improve the clarity and coherence of the registered plans regime.
• Stakeholders are invited to submit comments to QI-consultation-PA@fin.gc.ca by July 15, 2024.

BUSINESSES

The budget did not propose any changes to federal corporate income tax rates or to the $500,000 small business limit.

Federal Corporate Tax Rates

*Canadian-controlled private corporation Based on known rates at April 16, 2024 Rates represent calendar year rates

Accelerated Capital Cost Allowance (CCA) for Rental Projects

• The CCA rate will be increased from 4% to 10% on a temporary basis for eligible new purpose-built rental projects for which construction begins on or after April 16, 2024, and before January 1, 2031, and that are available for use before January 1, 2036.
• A purpose-build rental housing is a residential complex with at least 4 private apartment units or 10 private rooms or suites, in which at least 90% of the residential units are held for long term rental.

Interest Deductibility Limits – Purpose-Built Rental Housing

• The budget proposes to expand Excessive Interest and Financing Expenses Limitation (EIFEL) exceptions to include an election exemption for certain interest and financing expenses incurred before January 1, 2036, in respect of arm’s length financing used to build or acquire eligible purpose-built rental housing in Canada.
• The definition of purpose-built rental housing is defined in the preceding section regarding Accelerated CCA, and the EIFEL exceptions would apply to taxation years that begin on or after October 1, 2023.

Accelerated CCA for Productivity-Enhancing Assets

• Budget 2024 proposes to provide immediate expensing (100% CCA) for new additions of property in respect to the following CCA Classes:
  • Class 44 (patents or the rights to use patented information for a limited or unlimited period),
  • Class 46 (data network infrastructure equipment and related systems software), and
  • Class 50 (general-purpose electronic data-processing equipment and systems software).
• These rules apply for new additions of property acquired on or after April 16, 2024, and the 100% deduction would be available in the year in which the property becomes availability for use.
• Restrictions and proration rules apply in relation to property previously used, and for short taxation years, respectively.

Canada Carbon Rebate for Small Businesses – Refundable Tax Credit

• Budget 2024 proposes to return a portion of fuel charge proceeds from a province as a refundable tax credit directly for eligible businesses, sized in proportion to the number of persons they employ in the province.
• The credit would be available to CCPCs who have no more than 499 employees throughout Canada in the calendar year in which the fuel charge year begins.
• The CRA will automatically determine the tax credit amounts or an eligible corporation and may the amount to the corporation, corporations do not need to apply for this credit.
• With respect to the 2019-20 to 2023-24 fuel charge years, the tax credit would be available to an eligible corporation that files a tax return for its 2023 taxation year by July 15, 2024.

Further Details on Proposed Employee Ownership Trust Rules

• Budget 2023 proposed new rules to facilitate the use of employee ownership trusts (EOT) to acquire and hold shares of a business as part of a succession plan.
• These measures would apply to qualifying dispositions of shares that occur between January 1, 2024 and December 31, 2026.
• Budget 2024 outlines qualifying conditions on the sale of a shares to an EOT, including holding period rules, active business rules, and rules for resident beneficiaries of the EOT following the qualifying business transfer.
• The individual would be able to claim an exemption of up to $10 million in capital gains from the sale, and if multiple individuals are selling shares to an EOT, they may each claim the exemption, but the total exemption in respect to the qualifying business transfer cannot exceed $10 million.
• The budget also proposes disqualifying events, where if such an event occurs within 36 months of the qualifying business transfer, the exemption would not be available and could be retroactively denied to the individual who previously claimed the exemption.
• The budget also proposes to expand qualifying business transfers to include the sale of shares to a worker cooperative corporation.

Mineral exploration tax (MET) credit

• The MET credit of 15% of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors, will be extended to flow-through share agreements entered into on or before March 31, 2025.
• The MET credit was originally scheduled to expire on March 31, 2024.

Clean Electricity Investment Tax Credit

• The budget introduces the Clean Electricity investment tax credit equal to 15% of the capital cost of eligible property, subject to regulations and limitations, including:
  • Equipment used to generate electricity from solar, wind or water energy
  • Concentrated solar energy equipment used to generate electricity
  • Geothermal energy equipment used for the purposes of generating electricity and/or heat
  • Equipment that is part of a system used to generate electricity, or both electricity and heat, from specified waste materials
  • Certain stationary electricity storage equipment and equipment used for pumped hydroelectric energy storage
  • Certain equipment that is part of an eligible natural gas energy system
  • equipment and structures used for the transmission of electricity between provinces and territories
• Specific rules outlining details of eligible property are outlined in the Budget.
• The Clean Electricity investment tax credit would apply to eligible property that is acquired and becomes available for use on or after April 16, 2024 and before 2035, provided it has not been used for any purpose before it’s acquisition, and not part of a project that began construction before March 28, 2023.
• Budget 2024 also proposes to clarify and modify matters in relation to the Clean Technology Manufacturing investment tax credit, which was previously proposed in 2023.

Repealing Debt Forgiveness Rules Exception for Bankrupt Corporations

• The Income Tax Act contains a set of debt forgiveness rules, and bankrupt taxpayers are generally excluded from these rules.
• In response to certain taxpayers manipulating the bankrupt status to benefit from the exception in the debt forgiveness rules, the budget proposes to repeal the exception to the debt forgiveness rules for bankrupt corporations and the loss restriction rule application to bankrupt corporations.
• The debt forgiveness rules exception would contribute to apply for individuals.
• These proposals would apply to bankruptcy proceedings that are commenced on or after April 16, 2024.

Synthetic Equity Arrangement Anti-Avoidance Rule

• Budget 2024 proposes to remove the tax-indifferent investor exception to the anti-avoidance rule that denied the dividend received deduction in respect of synthetic equity arrangements.
• This measure would apply to dividends received on or after January 1, 2025.

Waiver of Withholding Requirements for Non-Resident Service Providers

• The budget proposes to allow the CRA to waive the 15% tax withholding requirement for payments to a non-resident that provides services in Canada, over a specified period and over multiple transactions, with a single waiver, if either of the following conditions are met:
• The non-resident would not be subject to Canadian income tax in respect of the payments because of a tax treaty between its 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.
• This measure would come into force on royal assent of the enacting legislation.

OTHER MEASURES

Expanded removal of GST from rental housing

• The enhanced GST rental rebate for new rental units that was introduced in enacted Bill C-56, Affordable Housing and Groceries Act, will be expanded to student residences built by public universities, colleges, and school authorities.
• This measure will remove the GST for new student residences for which construction begins on or after September 14, 2023, and before 2031, and construction is completed before 2036.

Measures Relating to Charities

• Budget 2024 seeks to extent the period for which qualifying foreign charities are granted status as a qualified done from 24 months to 36 months.
• The budget seeks to modernize services by proposing various amendments to the income tax act and simplify the way the CRA provides services and communications to charities and other qualified donees, including opting in to electronic communication.
• The budget also proposes to simplify the contents of official donation receipts and allow for issuance of official donation receipts electronically.

Non-Compliance with Information Requests

• The budget proposes various amendments to the Income Tax Act in relation to information gathering, intended to enhance the efficiency and effectiveness of tax audits and facilitation the collection of taxes. These measures include:
  • Issuing a new type of notice referred to as a “Notice of Non-Compliance” to a person that has not complied with a requirement or notice to provide information issued by the CRA. Such a notice would increase the normal reassessment period and include significant penalties of $50/day that the notice is outstanding, up to a maximum of $25,000.
    • The penalty would not apply if a notice of non-compliance is ultimately vacated by the CRA or the court.
  • Including a requirement or notice that any oral or written requirement information or documents be provided under oath or affirmation.
  • Imposing a penalty when the CRA obtains a compliance order from a court against a taxpayer, equal to 10% of the tax payable by the taxpayer in respect of the taxation year(s) to which the compliance order relates. The penalty only applies if the tax on a given compliance order exceeds $50,000.
  • Extending the stop the clock rules, which suspend the counting of days in the assessment limitation period, so that these rules apply when a taxpayer seeks judicial review of any requirement or notice issued to the taxpayer by the CRA in relation to the audit and enforcement process, and during any period that a notice of non-compliance is outstanding.
• These amendments would come into force on royal assent of the enacting legislation.

Reportable and Notifiable Transactions Penalty

• The budget announces the government’s intention to remove from the scope of the general penalty provision, the failure to file an information return in respect of a reportable or notifiable transaction under the mandatory disclosure rules.
• These rules previously provided that a person who fails to file or make a return or comply with specified rules, being guilt of an offence, and liable to penalties up to $25,000 and imprisonment for up to a year.
• These rules would be deemed to have come into force on June 22, 2023.

Avoidance of Tax Debts

• The budget proposes to introduce a supplementary rule to strengthen the tax debt anti-avoidance rule, where taxpayers employ planning techniques where they avoid paying tax liabilities by transferring assets to non-arm’s length persons.
• The Income Tax Act contains a significant penalty for those who engage in a planning activity that they know, or would reasonably be expected to know, is tax debt avoidance planning.
• Budget 2024 proposes that taxpayers who participate in tax debt avoidance planning be jointly and severally, or solidarily, liable for the full amount of the avoided tax debt, including any portion that has effectively been retained by the planner.

Crypto-Asset Reporting Framework

• Budget 2024 proposes to implement the OECD-developed framework of Crypto-Asset Reporting Framework (CARF) that provides the automatic exchange of tax information in relation to transactions in crypto-assets.
• The budget proposal would impose a new reporting requirement on entities and individuals that are resident in Canada, or that carry on business in Canada, and that provide business services relating to exchange transactions of crypto-assets.
• The crypto-asset providers must report to the CRA, in respect of each customer and each crypto-asset, a number of details which include but are not limited to, the annual value of exchanges and transfers, and details of various attributes of each customer, including tax identification numbers.
• These measures would apply to the 2026 and subsequent calendar years.

Refer to the official Budget 2024 document for further details on the above tax announcements.

This has been prepared by the Total Wealth Solutions Group of Raymond James Ltd., (RJL). Statistics and factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. This is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., Member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member - Canadian Investor Protection Fund.