Federal Budget – April 16 2024

The spending programs contained in the 2024 Federal budget have been widely broadcasted over recent weeks, with a particular emphasis on housing programs. Finance Minister Chrystia Freeland is projecting the budget deficit for 2024-2025 to be approximately $40 billion. To keep the lid on the deficit, there are some significant changes to the taxation of capital gains.

The following are some highlights to the changes in the capital gains rules, as well as some other income tax changes we feel are of particular interest:

• The capital gain inclusion is increasing from one-half (50%) to two-thirds (66.67%) after June 24, 2024 for corporations and trusts. As a consequence, there may be a flurry of dispositions by these entities over the next two months to lock-in the 50%inclusion rate.
• The capital gain inclusion rate will also increase for individuals after June 24, 2024 to two-thirds (66.67%) on capital gains that exceed $250,000 in a calendar year. This may also result in the triggering of capital gains before June 25th for individuals with portfolios having large accruing capital gains.
• The use of unused capital losses carrying forward into 2024 will be able to be applied against capital gains at similar inclusion rates, so as to not devalue these capital losses.
• Similar to the changes in the capital gains inclusion rates, taxable stock option benefits will also increase to two-thirds (66.67%) after June 24.
• The Capital Gain Exemption (CGE) on the sale of eligible small business shares and eligible farming or fishing properties is being increased from $1,016,836 for 2024 to $1,250,000 for sales after June 24, 2024, and will continue to be indexed to inflation in future years.

The introduction of the Canadian Entrepreneurs’ Incentive. This incentive would reduce the capital gains rate by 50% on $200,000 of accumulating gains per year starting in 2025, to a maximum of $2 million by 2034. This incentive is in addition to the Capital Gain Exemption. For example, eligible gains would have the inclusion rate reduced from two-thirds (66.67%) to one-third (33.33%) on the cumulative balance of this incentive.

The new Alternative Minimum Tax (AMT) rules effective 2024 will now allow individuals to claim 80% of the Charitable Donation Tax Credit, when calculating AMT. The previously announced deduction of 50% was widely felt to be a flaw in the new calculation rules.

The Employee Ownership Trust Tax Exemption was introduced in the 2023 Budget. The 2024 Budget provides more details, which would effectively exempt up to $10 million of capital gains on sale of shares of active privately owned corporations to qualifying groups. This exemption would result in management buy-outs being easier to implement.

The Home Buyers Plan allows individuals to borrow from their Registered Retirement Savings Plans (RRSPs) for purposes of purchasing a house. The withdrawal limits are being increased from $35,000 to $60,000. The fifteen-year repayment period remains but the start date to begin repayment has been temporarily extended.

The capital cost allowance (CCA) rates on some classes of depreciable assets have been increased to a 100% first-year deduction, if purchased and put into use before January 1st, 2027. The most common application will be for computers and other Class 50 assets.

Today’s Budget will no doubt impact many individuals and investment companies. Should you wish to discuss how the new rules will affect you, please feel free to contact us at your convenience.