Canada’s 2024 Fall Economic Statement: Key Tax Measures and Implications

On December 16, 2024, the Department of Finance Canada released its Fall Economic Statement, outlining significant tax measures and economic initiatives aimed at fostering investment, addressing inflation, and supporting businesses. Below are the highlights of the statement, focusing on personal and business tax measures, as well as trade and other policy updates.

Effective January 1, 2025, individuals will have an extended period to reinvest proceeds from the sale of eligible small business corporation (ESBC) shares and defer the tax on the capital gain on the sale. The new rules allow reinvestment within the year of disposition and the entire following calendar year.

Additionally, the scope of eligible shares will expand to include both common and preferred shares, and the asset threshold for ESBCs will increase from $50 million to $100 million. These changes aim to encourage reinvestment in small businesses by deferring capital gains tax.

The recently enacted Tax Break for All Canadians Act introduces a two-month GST/HST holiday on essential goods, including groceries, restaurant meals, and children’s clothing. This measure is designed to provide immediate relief to Canadians facing rising costs of living.

The government proposes to make the following enhancements to its current SR&ED Program:

1. Increase the annual expenditure limit for the enhanced 35% SR&ED tax credit from $3 million to $4.5 million.
2. Increase the taxable capital phase-out thresholds from $10 million–$50 million to $15 million–$75 million allowing for larger corporations to qualify for the enhanced SR&ED credits
3. Allow Canadian public corporations to qualify for the enhanced refundable credit.

The government also intends to encourage the development of intellectual property by implementing a patent box regime that will be announced in the 2025 Budget.

The accelerated investment incentive is proposed to be reinstated for a five-year period starting January 1, 2025, and assets that become available for sure before 2030. This allows for immediate expensing of capital asset purchases instead of a slower annual deduction of capital cost allowance.

The government proposes new reporting requirements for NPOs with gross revenues exceeding $50,000 and requires these entities to file a return. A simplified short-form return will also be introduced for smaller NPOs, requiring basic information such as name, address, total assets, liabilities, and activities. It is expected that these requirements will apply for years starting in 2026.

The government reaffirmed its commitment to implementing previously announced tax measures, including:

• Legislative proposals included in the notice of ways and means motion tabled on October 29, 2024, related to disclosure requirements for charities.
• Legislative proposals included in the notice of ways and means motion tabled on September 23, 2024, related to capital gains and the lifetime capital gains exemption,
• Alternative Minimum Tax changes,
• Accelerated Capital Cost Allowance for Purpose-Built Rental Housing,
• The Global Minimum Tax Act and the Income Tax Conventions Act,
• The Crypto-Asset Reporting Framework and the Common Reporting Standard announced in Budget 2024.