2024 Federal Budget Highlights
On April 16, 2024, Canada's Finance Minister, the Honourable Chrystia Freeland, presented the 2024 federal budget to the House of Commons. Sicotte Guilbault is proud to present a summary of the tax measures contained in this budget. The measures fall into two broad categories: personal income tax and corporate income tax.
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PERSONAL INCOME TAX
LIFETIME CAPITAL GAINS EXEMPTION
Currently, on the disposition of qualified small business corporation shares, shares of the capital stock of a family farm or fishing corporation and eligible farm or fishing property, an amount of $1,016,836 is tax-exempt. For dispositions on or after June 25, 2024, this amount will increase to a maximum of $1.25 million.
CAPITAL GAINS INCLUSION RATE
When a taxpayer realizes a capital gain, one-half of the gain must be included in computing income. The 2024 Budget proposes to increase the capital gains inclusion rate to two-thirds, effective June 25, 2024. Note that, for individuals only and in certain circumstances, this new inclusion rate would apply to the portion of capital gains exceeding $250,000.
CANADIAN ENTREPRENEURS’ INCENTIVE
In keeping with the capital gains theme, this incentive would reduce the tax rate, in certain circumstances, on capital gains realized on the disposition of eligible shares. In cases where this incentive applies, the capital gains inclusion rate would be half the current inclusion rate, up to $2 million in capital gains per individual over his or her lifetime.
VOLUNTEER FIREFIGHTERS AND SEARCH AND RESCUE VOLUNTEERS TAX CREDITS
The budget proposes to enhance the tax credit for volunteer firefighters and the tax credit for search and rescue volunteers. For the 2024 and subsequent taxation years, the maximum amount of this tax relief would be $900.
MINERAL EXPLORATION TAX CREDIT
The mineral exploration tax credit increased tax benefits for investors in flow-through shares. Since this tax credit was due to expire on March 31, 2023, the 2024 budget proposes to extend eligibility for the mineral exploration tax credit by one year.
ALTERNATIVE MINIMUM TAX
The 2024 Budget aims to make a number of changes to the calculation of the Alternative Minimum Tax.
Some of these changes:
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Budget 2024 also proposes a number of technical amendments to the AMT legislative proposals.
CANADA CHILD BENEFIT
Currently, when a child dies, the parent receiving the CCB becomes ineligible for the allowance in the month following the death. For deaths occurring after 2024, the budget proposes that parents would continue to receive the CCB six months after the death. The extended period would also apply to the Child Disability Benefit, which is paid with the CCB in respect of a child eligible for the Disability Tax Credit.
DISABILITY SUPPORTS DEDUCTION
People with a physical or mental disability who earn income from employment, a business or who attend school can claim the deduction for certain goods and services. With Budget 2024, these individuals will be able to claim a deduction for more goods and services, including:
- the cost of an ergonomic task chair.
- the cost of a bed positioning device.
- the cost of purchasing a mobile computer cart.
- the cost of purchasing an alternative input device to enable the person to use a computer.
- the cost of purchasing a digital pen device to enable the person to use a computer.
- the cost of purchasing a low vision navigation device.
- the cost of purchasing memory aids or organisational aids.
EMPLOYEE OWNERSHIP TRUST TAX EXEMPTION
The 2023 Budget included several measures relating to employee group trusts (EGTs) to facilitate the purchase of a business by its employees and the ownership of Canadian businesses by employees.
The 2024 Budget contains additional details on ECTs.
CHARITIES AND QUALIFIED DONEES
Currently, the Income Tax Act allows a foreign charity to be registered as a qualified donee for a temporary period of 24 months. Budget 2024 proposes to extend from 24 to 36 months the period during which these organizations can benefit from qualified donee status.
To be eligible for registration, a foreign charity must have received a gift from the Government of Canada and be engaged in activities relating to urgent humanitarian assistance, disaster relief or activities in Canada's national interest.
The budget also proposes a number of changes to simplify and modernize the Canada Revenue Agency's service delivery and reporting for registered charities and other qualified donees.
HOME BUYERS' PLAN
The Home Buyers' Plan allows Canadians to draw on their RRSPs to finance the purchase of a first home. Currently, the maximum amount that can be withdrawn from an RRSP is $35,000, which must be repaid over a period of 15 years beginning in the second year following the year in which the first withdrawal was made. The budget proposes to increase the withdrawal limit to $60,000 and also proposes to defer the start of the 15-year repayment period by three additional years for members making their first withdrawal between January 1, 2022 and December 31, 2025.
QUALIFIED INVESTMENTS FOR REGISTERED PLANS
Many types of registered plans can invest in what are known as "qualified investments". The 2024 Budget invites suggestions on how the rules on qualified investments can be modernized to make them more consistent.
DEDUCTION FOR TRADESPEOPLE’S TRAVEL EXPENSES
The government will consider changes to the travel expense deduction for tradespeople, both to simplify it and to increase the amount.
INDIGENOUS CHILD AND FAMILY SERVICES SETTLEMENT
For 2024 and subsequent years, the 2024 Budget proposes to exempt from income tax trusts created under the First Nations Child and Family Services Settlement Agreement, Jordan's Principle and the Trout Group. Under this announcement, these payments would not be included in computing income for federal income tax purposes.
CORPORATE INCOME TAX
CLEAN ELECTRICITY INVESTMENT TAX CREDIT
The 2023 Federal Budget introduced the refundable Clean Energy Investment Tax Credit. The 2024 budget presents additional information on the design and implementation of the tax credit, which is equal to 15% of the capital cost of certain assets.
Only certain Canadian companies would be eligible for the tax credit and various types of equipment would qualify, including:
- equipment used to generate electricity from solar, wind or water power, as described in Class 43.1.
- concentrated solar energy equipment.
- equipment used to produce electricity, or both electricity and heat, from nuclear fission.
- equipment used to produce electricity, or both electricity and heat, solely from geothermal energy.
- equipment forming part of a system used to produce electricity, or both electricity and heat, from specified waste products.
- fixed electrical energy storage equipment and equipment used for a pumped hydroelectric energy storage facility described in category 43.1.
- equipment that is part of a qualifying natural gas energy system.
- equipment and structures used for the transmission of electricity between provinces and territories.
POLYMETALLIC EXTRACTION AND PROCESSING
The 2023 Budget proposed the Clean Technology Manufacturing Investment Tax Credit, which would provide a refundable tax credit equal to 30% of the cost of investments in eligible property that is used all or substantially all for eligible activities.
The 2024 Budget proposes adjustments to the Clean Technology Manufacturing Tax Credit to provide increased support and greater clarity for businesses engaged in these activities.
ACCELERATED CAPITAL COST ALLOWANCE
Budget 2024 proposes to grant an accelerated CCA rate of 10% (currently 4%) to new purpose-built rental housing projects where construction commences on or after Budget Day and before 1 January 2031. These units must be ready for use before 1 January 2036.
Eligible property that will qualify for this accelerated CCA is new purpose-built rental housing that constitutes a residential complex:
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For assets added to category 44 (patents or rights to use patented information with or without a limited life), category 46 (data network infrastructure equipment and related systems software) and category 50, the 2024 budget proposes a CCA rate of 100%, provided the asset is acquired on or after budget day and is ready for use before 1 January 2027.
CANADA CARBON REBATE FOR SMALL BUSINESSES
Currently, the Fuel Levy applies in the following provinces: Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. The 2024 Budget proposes a new Canadian Small Business Carbon Rebate to help small businesses meet the higher costs associated with fossil fuel use.
A company's eligibility will be based on the number of people it employs.
INTEREST DEDUCTIBILITY LIMITS – PURPOSE-BUILT RENTAL HOUSING
In response to the recommendations set out in Action 4 of the Organisation for Economic Co-operation and Development (OECD) and Group of Twenty (G20) Tax Base Erosion and Profit Shifting (BEPS) project, Budget 2024 proposes to extend the exemption for financing interest expense that is incurred to construct or acquire qualifying purpose-built rental housing in Canada.
NON-COMPLIANCE WITH INFORMATION REQUESTS
Budget 2024 aims to improve the efficiency and effectiveness of tax audits and to facilitate the timely collection of tax revenues. Amendments to other legislation administered by the CRA are also proposed. Budget 2024 also proposes certain technical changes to ensure that the rules meet their policy objectives, including :
- Allowing the CRA to issue notices of non-compliance.
- Allowing the CRA to require information (oral or written) or documents to be provided under oath or solemn affirmation.
- Allowing the CRA to impose a penalty where it obtains an enforcement order from a court directing a delinquent taxpayer to comply with the CRA's requests for information.
- Modifying the statute of limitations suspension rules so that they apply when a taxpayer requests a judicial review of a requirement or notice received from the CRA in connection with the audit and enforcement process or during any period in which a notice of non-compliance is outstanding.
AVOIDANCE OF TAX DEBTS
Budget 2024 proposes to introduce a rule in addition to the current attribution rules to improve the rule on tax debt avoidance. This rule would apply in the following circumstances:
The penalty that currently applies to those who engage in tax avoidance planning will be extended to include the measure described above.
Budget 2024 also proposes that taxpayers who engage in tax planning will be jointly and severally liable for the full amount of the tax debt avoided, including any portion withheld by a planner.
SYNTHETIC EQUITY ARRANGEMENTS
The Income Tax Act allows a corporation to deduct the amount of dividends received on a share of a corporation resident in Canada, subject to certain restrictions. One of these restrictions is an anti-avoidance rule that denies the deduction for dividends received in respect of synthetic equity arrangements. However, there are two exceptions to this anti-avoidance rule, the indifferent investor exception and the exchange-traded arrangements exception. Budget 2024 proposes to eliminate these two exceptions.
MANIPULATION OF BANKRUPT STATUS
Some taxpayers seek to manipulate bankruptcy status in order to avoid the application of the debt forgiveness rules. Budget 2024 proposes to subject bankrupt corporations to the general rules that apply to corporations whose commercial debts are discharged. The exception applicable to individuals would remain in force.
MUTUAL FUND CORPORATIONS
The Income Tax Act provides a number of tax advantages for companies that qualify as open-end investment companies. In certain circumstances, a company can take advantage of certain loopholes in the law in order to qualify as a mutual fund corporation. The 2024 Budget will prevent a corporation from qualifying as a mutual fund corporation where it is controlled by or for the benefit of a corporate group (including a corporate group consisting of a combination of corporations, individuals, trusts and non-arm's length partnerships). Exceptions will be provided for.
