Every time the Canadian government releases a new federal budget, many Canadians are curious about how the federal budget tax changes will affect them personally or their businesses. The budget promises “fairness for every generation,” so here is what you need to know.
Personal Tax Changes
Capital gains inclusion rate
It has been on the horizon for a while, and the budget 2024 is now introducing an increase to the capital gains inclusion rate for corporations, trusts, and individuals from one-half to two-thirds. The new inclusion rate will apply for capital gains of over $250,000 for individuals. The new rate will be effective on or after June 25, 2024.
Lifetime Capital Gains Exemption
If a business owner sells qualified shares of a qualified small business corporation or qualified farm and fishing property, the lifetime capital gains exemption will be increased to $1.25 million of eligible capital gains, up from $1,016,836 in 2024. The new budget proposes this limit will be increased for sales after June 25, 2024. Indexation of the LCGE, so an increasing limit based on inflation, will resume in 2026.
Canadian entrepreneurs’ incentive
The federal budget will also introduce a brand new Canadian Entrepreneurs’ Incentive, which will go into effect on January 1, 2025. It will reduce the tax rate on capital gains on the sale of qualifying shares by an eligible individual to one-half on up to $2 million in capital gains per individual over their lifetime. This excludes professional corporations, a corporation whose principal asset is the reputation or skill of one or more employees and businesses in the financial, insurance, real estate, food, accommodation, arts, recreation, entertainment, consulting or personal care services sectors. While the limit is $2 million, it will be introduced in $200,000 increments until reaching the limit on January 1, 2034.
Home Buyers’ Plan
Another budget proposition is to:
- Increase the RRSP withdrawal limit to $60,000 (from $35,000), effective for 2024 and subsequent years for withdrawals made after April 16, 2024
- For participants making a first withdrawal between January 1, 2022, and December 31, 2025, the start of the 15-year repayment period will be temporarily deferred by an additional three years.
Corporate and Business Tax Changes
Clean Electricity Investment Tax Credit
After being announced in the 2023 budget, the 2024 budget now provides the design and implementation details of the Clean Electricity Investment Tax Credit, equal to 15 percent of the capital cost of eligible property. The credit will apply to any eligible property acquired and become available for use on or after April 16, 2024 and before 2035. Any property that has been part of a project that began construction before March 28, 2023, is not eligible.
Clean Technology Manufacturing Investment Tax Credit
The adjustments to the Clean Technology Manufacturing Investment Tax Credit aim to clarify the situation for businesses in polymetallic projects (projects engaged in the production of multiple metals). These changes would apply to property acquired and made available for use on or after January 1, 2024.
Accelerated capital cost allowance
Another area the budget is proposing changes is the Accelerated Capital Cost Allowance, which affects two points:
Purpose-built rental housing
For new eligible purpose-built rental projects that begin construction on or after April 16, 2024, and before January 1, 2031, and are available for use before January 1, 2036, the budget proposes an accelerated CCA of 10 percent (up from four percent at the moment).
Productivity-enhancing assets
The budget proposes to immediately add three new classes within which you can expense new additions of properties:
- 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)
- Class 50 (general-purpose electronic data-processing equipment and systems software) if the property is acquired on or after April 16, 2024, and becomes available for use before January 1, 2027.
This enhanced allowance provides a 100 percent first-year deduction, only available for the year the property becomes available for use. Property that becomes available for use after 2026 and before 2028 continues to benefit from the Accelerated Investment Incentive.
Canada Carbon Rebate for small businesses
The Canada Carbon Rebate has been a much-contested topic. The 2024 budget proposes to return a portion of pollution pricing fuel charge proceeds to eligible small and medium-sized businesses via a new Canada Carbon Rebate. This refundable tax credit would be available to a Canadian-controlled private corporation that files a tax return for its 2023 taxation year by July 15, 2024.
Interest deductibility limits – Purpose-built rental housing
One more area the budget proposes an expansion in is an exemption from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules to include an elective 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.
Get the Best Tax Advice
If you have any additional questions about the federal tax changes for 2024 or are looking for other tax advice, We can help. Stratos Accounting & Consulting is your professional choice for dedicated, personalized, customized services. We strive to provide our clients with exceptional customer service and always be available to answer questions and provide guidance. Our experienced professionals work closely with our clients to understand their unique needs and objectives and develop solutions tailored to their situations.
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