The Minister of Finance, Chrystia Freeland delivered the 2024 Budget (the “Budget”) this afternoon. Highlights of the tax measures announced in the Budget are summarized below.
Capital Gains Inclusion Rates
The Budget proposes to increase the current capital gains inclusion rate from 50% to 66.67% for corporations and trusts. The Budget further proposes similar increases for individuals on the portion of capital gains that exceed $250,000 in a given year. These inclusion rate changes apply to dispositions on or after June 25, 2024.
Business Income Tax
Carbon Tax Rebates for Small Business
The Budget proposes a carbon tax credit for a Canadian-controlled private corporation that files a tax return for the 2023 year by July 15, 2024.
This tax credit would be for companies that have less than 500 employees in a calendar year throughout Canada. The tax credit would be determined depending on the applicable province and equal to the number of employees employed. This credit would be automatically be calculated by the Canada Revenue Agency so there is no need to apply separately for the credit.
Note: There is no mention whether BC corporations would be eligible for this carbon tax rebate given that BC is not part of the federal carbon backstop.
Accelerated Capital Cost Allowance (“CCA”)
The Budget proposes to provide immediate expensing for new property additions in Class 44 (patents), Class 46 (data network infrastructure), and Class 50 (general purpose computers) acquired on or after April 16, 2024, and before January 1, 2027. The enhanced allowance would provide a 100% first-year deduction and would be available only for the year in which the property becomes available for use.
The Budget proposes to provide an accelerated CCA of 10% from 4% for new eligible purpose-built rental projects that start construction on or after April 16, 2024, and before January 1, 2031, and are available for use before January 1, 2036.
Interest Deductibility Limits – Purpose-Built Rental Housing
The Budget proposes an elective exemption from the excess interest and financing expenses limitation (EIFEL) rules 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.
Personal Income Tax
Lifetime Capital Gain Exemption
The Budget proposes to increase the Lifetime Capital Gains Exemption (LCGE) to $1,250,000 (from $1,016,836) on eligible capital gains. This measure would apply to dispositions that occur on or after June 25, 2024.
Indexation of the LCGE would resume in 2026.
Canadian Entrepreneurs’ Incentive
The Budget proposes to introduce an incentive that would reduce the tax rate on capital gains on the disposition of qualifying shares by an eligible individual.
This incentive would provide for a capital gains inclusion rate that is 50% of the prevailing inclusion rate. The lifetime limit would be phased in by increments of $200,000 per year, beginning on January 1, 2025 until it reaches $2 million by January 1, 2034.
Under the 66.67% capital gains inclusion rate proposed in this Budget, this measure would result in an inclusion rate of 33.33% for qualifying dispositions. This measure would apply in addition to any available LCGE.
Alternative Minimum Tax
The Budget proposes to change the AMT calculation so that the tax treatment for charitable donations will remain at 80% (instead of the previously proposed change of 50%).
Further changes are proposed to AMT for certain trusts for indigenous group and some minor technical amendments.
Home Buyer’s Plan
The Budget proposes to increase the withdrawal limit from $35,000 to $60,000 for 2024 and subsequent years for withdrawals made after April 16, 2024.
Disability Supports Deduction
The Budget proposes to expand the list of expenses eligible for the Disability Supports Deduction. Further, the Budget proposes that expenses for service animals to be recognized under the Disability Supports Deduction. Taxpayers would be able to choose to claim an expense under either the Medical Expense Tax Credit or the Disability Supports Deduction. These measures would apply to the 2024 and subsequent taxation years.
Other
Charities
The Budget proposes to modernize the requirements for donation receipts by removing certain information required on receipts and expressly permitting electronic receipts.
Non-Compliance with Information Requests
The Budget proposes to allow the CRA to issue 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 assistance or information issued by the CRA. The Budget proposes a penalty of $50/day, to a maximum of $25,000 on a person that has been issued notice of non-compliance and the notice is outstanding.
Disclaimer
This information is general in nature and may not be applicable to all taxpayers.
