On April 16, 2024, the Government of Canada unveiled its federal budget for the fiscal year 2024-2025, presenting a series of measures designed to impact individuals and businesses. 

This comprehensive review will analyze the implications of these budgetary changes, focusing on key aspects relevant to investors, small business owners, and professionals.

For Individuals

1. Capital Gains Inclusion Rate

• The capital gains inclusion rate, which determines the portion of capital gains included in taxable income, is undergoing significant changes. 
• Currently, one-half of a capital gain is included in a taxpayer’s income, and the same rate applies to capital losses. 
• Budget 2024 proposes an increase in the inclusion rate to two-thirds for capital gains exceeding $250,000 realized by individuals and for all capital gains realized by corporations and trusts. 
• The one-half inclusion rate will continue to apply to annual capital gains up to $250,000 for individuals. 
• These changes will be effective for capital gains realized on or after June 25, 2024.

1. Enhanced Lifetime Capital Gains Exemption (LCGE)

• The Lifetime Capital Gains Exemption allows individuals to exclude a portion of their capital gains from taxable income when disposing of qualified small business corporation shares and qualified farm or fishing property. 
• For 2024, the LCGE amount is $1,016,836, indexed to inflation. 
• Budget 2024 proposes increasing the LCGE to $1.25 million for eligible capital gains, applicable to dispositions occurring on or after June 25, 2024, with indexing to inflation starting in 2025. 
• This change will benefit Canadians with eligible capital gains up to $2.25 million.

1. Canadian Entrepreneurs’ Incentive

• To support entrepreneurship, Budget 2024 introduces the Canadian Entrepreneurs’ Incentive, reducing the tax rate on capital gains from the disposition of qualifying shares by eligible individuals. 
• This incentive applies a capital gains inclusion rate of 33.3% on up to $2 million in lifetime capital gains per individual, in addition to any available capital gains exemption. 
• Qualifying shares must meet specific conditions, including being part of a Canadian-Controlled Private Corporation (CCPC) and being held for at least five years by a founding investor. 
• This incentive will be phased in starting January 1, 2025, and will reach a $2 million limit by January 1, 2034.

1. Alternative Minimum Tax (AMT)

The AMT, a parallel tax calculation with fewer allowances than the regular income tax system, will see further changes as announced in Budget 2023 and updated in Budget 2024. 

Key amendments include:

• Allowing individuals to claim 80% of the Charitable Donation Tax Credit when calculating AMT.
• Full deductions for Guaranteed Income Supplement, social assistance, and workers’ compensation payments.
• Full exemption of Employee Ownership Trusts from the AMT.
• Inclusion of certain disallowed credits (e.g., federal political contribution tax credit) in AMT carry-forward eligibility.
• Exemption of certain trusts for indigenous groups.
• These changes apply to taxation years beginning on or after January 1, 2024.

1. Home Buyers’ Plan (HBP)

• To assist first-time home buyers, the HBP allows withdrawals from Registered Retirement Savings Plans (RRSPs) without immediate tax consequences. 
• Budget 2024 proposes increasing the withdrawal limit from $35,000 to $60,000 for purchases made after Budget Day, including purchases benefiting disabled individuals. 
• Additionally, the repayment period for withdrawals made between January 1, 2022, and December 31, 2025, will be deferred by three years, extending the start of the 15-year repayment period.

1. Stronger Canada Pension Plan (CPP)

Technical amendments to the CPP legislation are proposed to:

• Provide a top-up to the Death Benefit for certain contributors.
• Introduce a partial children’s benefit for part-time students.
• Extend eligibility for the disabled contributors’ children’s benefit beyond age 65.
• Terminate survivor pension eligibility for individuals legally separated after a division of pensionable earnings.

1. Qualified Investments for Registered Plans

Budget 2024 invites stakeholders to provide feedback on modernizing qualified investment rules for registered plans (RRSPs, RRIFs, TFSAs, RESPs, RDSPs, FHSAs, and DPSPs) to enhance clarity and coherence. Comments are welcome until July 15, 2024.

1. Employee Ownership Trust Tax Exemption

• Proposed in Budget 2023 and currently under review, this measure aims to facilitate the creation of Employee Ownership Trusts (EOTs). 
• The 2023 Fall Economic Statement suggests exempting the first $10 million in capital gains from taxation when selling a business to an EOT, subject to specific conditions.

1. Disability Supports Deduction

• Budget 2024 proposes expanding the Disability Supports Deduction to include additional expenses, such as ergonomic work chairs and devices for individuals with physical or mental impairments. 
• Service animal expenses, as defined under the Medical Expense Tax Credit, will also be recognized. 
• Taxpayers can choose to claim these expenses under either the Medical Expense Tax Credit or the Disability Supports Deduction, starting in 2024.

1. Indigenous Child and Family Services Settlement

The income of trusts established under specific First Nations settlement agreements will be excluded from taxation, ensuring payments to beneficiaries are not considered taxable income. This measure takes effect in 2024.

1. Mineral Exploration Tax Credit

The Mineral Exploration Tax Credit, which supports junior mining companies through flow-through shares, will be extended for one year, applying to agreements entered into on or before March 31, 2025.

1. Canada Child Benefit (CCB) for Grieving Families

Budget 2024 proposes continuing CCB payments for six months after a child’s death, starting January 2025, to support grieving families.

1. Charities and Qualified Donees – Donation Receipts

• To simplify donation receipt issuance, Budget 2024 proposes removing certain requirements and allowing electronic receipts in a secure, non-editable format. 
• These measures will apply upon royal assent.

1. Registered Education Savings Plan and Future Automatic Enrollment in the Canada Learning Bond

• Budget 2024 intends to automatically enroll eligible children in the Canada Learning Bond if no RESP is opened for them by age four. 
• This initiative aims to assist low-income families in accessing educational benefits for their children.

For Businesses

1. Capital Gains Inclusion Rate

• As with individuals, corporations and trusts will see an increase in the capital gains inclusion rate from 50% to 66.67%, effective June 25, 2024. 
• This change applies to all capital gains realized by these entities.

1. Accelerated Capital Cost Allowance (CCA) – Purpose-Built Rental Housing

• To encourage the construction of new rental housing, Budget 2024 introduces an accelerated CCA rate of 10% for new purpose-built rental projects starting construction on or after Budget Day and before January 1, 2031, and available for use before January 1, 2036. 
• Eligible properties must meet specific criteria, such as having at least four private apartment units or 10 private rooms or suites. 
• Renovations of existing residential complexes do not qualify, but new additions to existing structures do.

Other Measures

More Affordable Homes

1. Building More Homes

• Taxing Vacant Lands: The government will consult on a potential tax on residentially zoned vacant land to incentivize construction.
• Building Apartments, Bringing Rents Down: A $15 billion top-up to the Apartment Construction Loan Program aims to build 30,000 more homes, increasing the program’s total to $55 billion in low-cost financing.

2. Making It Easier to Own or Rent a Home

• Credit for Paying Rent: Lenders will be encouraged to consider on-time rental payment history in mortgage applications.
• 30-Year Amortizations for First-Time Buyers: First-time buyers of new builds can opt for 30-year amortizations with insured mortgages, reducing monthly payments.
• Increasing the Home Buyers’ Plan: The withdrawal limit increases from $35,000 to $60,000, effective after April 16, 2024.
• Banning Foreign Buyers: The two-year ban on foreign purchases of residential property remains effective from January 1, 2023.

3. Helping Canadians Who Can’t Afford a Home

Lower Energy Bills: Increased support for energy-efficient home retrofits through the new Canada Greener Homes Affordability Program.

Enhancement of Free and Affordable Bank Accounts

The government has directed the Financial Consumer Agency of Canada (FCAC) to secure new agreements with financial institutions to enhance free and affordable banking account options, ensuring these services meet Canadians’ needs.

Conclusion

Budget 2024 introduces several key measures impacting both individual and business taxpayers. 

While the increased capital gains inclusion rate and additional compliance requirements present challenges, the enhanced LCGE, Canadian Entrepreneurs’ Incentive, and support for housing development offer substantial benefits. 

These changes underscore the government’s commitment to promoting entrepreneurship, housing affordability, and inclusive economic growth.

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