Federal Budget 2024 – What it Means for You

On April 16, 2024, the Deputy Prime Minister and Finance Minister, the Honourable Chrystia Freeland, presented Budget 2024 – Fairness for Every Generation, to the House of Commons.
No changes were made to personal or corporate tax rates.
The budget expects a deficit of $40.0 billion for 2023-24 and forecasts deficits of $39.8 billion for 2024-25, and $38.9 billion for 2025-26.

Capital Gains Inclusion Rate

• Increase from half to two-thirds of capital gains to be included as income
• Applies to gains realized on or after June 25, 2024
• Half of the capital gains on the first $250,000 to be included, and two-thirds of capital gains in excess of this amount included as income

What does this mean for me?

Where you have real estate that has grown in value by more than $250,000 that tax paid on the gain over $250,000 will be higher after June 24^th, 2024 than before. There may be some tax planning that can be done to mitigate this extra tax. Stock market investments with gains in excess of $250,000 will need to be managed carefully. If there were $400,000 in unrealized gains, triggering $200,000 per year would allow you to stay below the $250,000 limit and have ½ the gains included in taxable income each year as opposed to triggering all $400,000 in one year and having $250,000 at the ½ inclusion rate and $150,000 at the 2/3 inclusion rate.

Lifetime Capital Gains Exemption

• Proposed increase from to $1,016,836 (2024; indexed for inflation annually) limit to $1,250,000 in offsets of capital gains.
• $1,250,000 is the proposed lifetime limit
  • Only applies to dispositions taking place on or after June 25, 2024
  • Amount would continue to be indexed for inflation starting in 2026

What does this mean for me?

When selling shares of a Qualified Small Business Corporation (QSBC) the first $1,250,000 of gain per individual would be exempt from capital gains tax.  Note that AMT (see below) will likely apply. Which means what?  This means that while there may be no tax on the sale of the share, AMT may be payable. Planning to minimize AMT and preparation for an unexpected tax payment should be done in advance of a sale.

Canadian Entrepreneurs’ Incentive

• Capital gains inclusion rate halved
  • One third of gains taxable under new rates
• Applies to gains not offset by the lifetime capital gains exemption
• Lifetime limit on gains for social shares of a qualifying corporation start at $200,000
• Increasing by $200,000 annually until reaching $2 million in 2034
• Effective for disposition occurring after January 1, 2025
• Conditions for a qualifying corporation include:
  • The taxpayer much be a founding investor at the time the corporation was initially capitalized
  • They must hold the share for a minimum of five years prior to disposition
  • The taxpayer must be actively engaged on a regular, continuous and substantial basis in the five year period immediately before the disposition of the share
  • The share does not represent a direct or indirect interest in certain corporations, including a professional corporation

What does this mean for me?

When selling shares of a qualifying corporation (details to be released) the capital gains on amounts in excess of any Lifetime Capital Gains exemption will be included in income at one-half of the proposed two-thirds capital gains tax rate.  As an example, currently if a capital gain on the sale of shares was in excess of the capital gains exemption by $600,000, $300,000 would be included in taxable income of an individual.

Under the Canadian Entrepreneurs Incentive, $200,000 would be included in taxable income for a sale after January 1, 2025.  The interaction of the Lifetime Capital Gains Exemption, the new Capital Gains Inclusion Rate, the amended Alternative Minimum Tax (AMT) provisions and this new Canadian Entrepreneurs Incentive will need to be carefully planned long before any proposed sale of qualifying small business shares.

This also means that if the share is in your name, you need to be the one actively & substantially engaged with the corporation, you cannot have a proxy fulfill this requirement.

Employee Ownership Trust (EOT) Tax Exemption

• An EOT is a form of employee ownership where a trust holds shares of a corporation for the benefit of the corporation’s employees.
  • Introduced in Budget 2023
  • First $10 million in capital gains realized from certain sales of a business to an EOT are exempt from taxation, provided several conditions are met
• EOTs can be used to facilitate the acquisition by employees of their employer’s business, without requiring them to pay directly to acquire shares
  • Rules have yet to be approved by Parliament (Bill C-59)

What does this mean for me?

This can be a valuable way to exit your business and sell to employees, however the rules are quite specific and and not following each specific detail could mean not being able to take advantage of the opportunity and an unanticipated income tax bill.  A discussion with your advisors is necessary to plan this properly.

Alternative Minimum Tax (AMT)

• If amount calculated under AMT is greater than under regular system, individual will owe AMT instead
  • AMT allows fewer deductions, exemptions & tax credits
• Rate increase to 20.5% from 15%
• Exemption increased from $40,000 to start of 4^th tax bracket ($173,205 for 2024)
• Able to claim 80% (increase from previously proposed 50%) of the Charitable Donations Tax Credit

What does this mean for me?

AMT is an alternative way of calculating personal income tax when certain tax deductions or tax credits like large charitable donations or large eligible dividends or the capital gains exemption are part of your return.  Changes have been announced and then adjusted that may increase income taxes when selling shares of a private corporation or making large charitable donations. A discussion with your advisor prior to any of these types of transactions will ensure that AMT can be minimized and where it has to be paid, can be recovered.

Volunteer Firefighters and Search and Rescue Volunteers Tax Credits

• Credit amount for the volunteer firefighters tax credit and the search and rescue volunteers tax credit to $6,000
• Applies 2024 going forward

Mineral Exploration Tax Credit

• Eligibility for the mineral exploration tax credit extended to flow-through share agreements entered into on or before March 31, 2025 instead of March 31, 2024.

Canada Child Benefit (CCB) – Death of a Child

• Able to receive CCB for six months following the death of a child, if the child would still have been eligible for the CCB in that timeframe
  • Also applies to the child disability benefit
• Effective for death that occur after 2024

Disability Supports Deduction

• Expanded list of recognized expenses that support an individual who has an physical or mental impairment be able to earn employment income or attend school
  • Expenses for service animals now recognized
• Applies to 2024 going forward
• Taxpayers able to choose to claim an expense under either the medical expense tax credit or the disability supports deduction

Home Buyers Plan

• Increase in withdrawal limit to $60,000 from $35,000 for withdrawals after April 16, 2024
• Repayments for withdrawals between Jan 1, 2022 and Dec 31, 2025 would not start until 5 years after the withdrawal instead of the normal 3 years.

What does this mean for me?

When coupled with the First Home Savings Plan (FHSA) its possible to have $100,000 in total per individual for the down payment of a home.

Capital Gains Inclusions for Businesses

• Capital gains inclusion increased from one half to two-thirds
• Effective for gains on or after June 25, 2024.

What does this mean for me?

Since 2001, only 50% of a capital gain has been taxable, the other 50% has been tax free.  As of June 25, 2024, 66.67% of a capital gain will be taxable.  In Alberta, this means a tax increase of approximately 10% when the gains are taxed in the company and after-tax proceeds are paid out to the individual shareholders.  It may be worth looking at options to take advantage of the lower inclusion rate prior to June 25^th however each situation will need to be analyzed separately as the cost of paying taxes early, potential professional fees and other considerations may negate any benefit generated.

Accelerated Capital Cost Allowance (CCA) updates

• Productivity-Enhancing Assets
• Immediate 100% CCA deduction for new additions of property
  • Property is acquired on or after April 16, 2024 and becomes available for use before January 1, 2027
  • Applicable to patents or the rights to use patented information (class 44), network infrastructure equipment and related systems software (class 46), and computers and systems software (class 50)

What does this mean for me?

If your business needs new equipment that falls into these categories or is looking to invest in new patents, then this incentive will be worth taking advantage and the timing of those purchases may provide an accelerated tax deduction.  Ultimately a business will receive the same tax deduction, the difference is timing; 100% in the year of purchase vs a prescribed percentage based on the type of asset over a number of years. Speak with your advisor to help determine what timing works best for you to get the most out of the accelerated CCA deduction.

Purpose-Built Rental Housing

• Accelerated CCA of 10% for new eligible purpose-built rental projects that begin construction on or after April 16, 2024 and before January 1, 2031
  • Must be available for use before January 1, 2036
  • Must have at least four private apartment units or 10 private rooms or suites
  • At least 90% of the units must be held for long-term rental
• Conversions of non-residential real estate, such as an office building, into residential are eligible
• Renovation of existing residential complexes are NOT eligible
  • New additions to existing structures are eligible

What does this mean for me?

The higher CCA rate (up from 4%) would mean a larger tax deduction on qualifying projects. This can provide a tax savings in the earlier years of the project thereby enhancing cash flow to the owner.  Similar to the Productivity Enhancement incentive above, the ultimate tax deduction is the same but the timing is different. With the magnitude of the amounts and the increase from 4% to 10%, the cash flows in the early years could make certain projects more attractive than in the past. Speak with your advisor to help determine what timing works best for you to get the most out of the accelerated CCA deduction.

Canada Carbon Rebate for Small Businesses

• A revised process to provide direct carbon rebates (a refundable tax credit) to Canadian-controlled private corporations (CCPCs)
  • Only applies to CCPCs in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador
• Calculated by multiplying number of persons employed in the province during the calendar year in which the fuel charge year begins, by a payment rate to be specified by the Minister of Finance
  • Staff levels in 2022 used to calculate rebate for 2022-2023 fuel charge year
  • Cannot have more than 499 employees in Canada in the calendar year
    • Determined by the number of T4s filed
  • Payment rates may vary by province
• Will be paid automatically
• Rebate available if tax return for 2023 filed by July 15, 2024
  • Backdated to 2019-2020 through to 2023-2024 fuel charge years

What does this mean for me?

For those businesses that have been late filing income tax returns in the past, in addition to any interest and penalties that may apply, there may also be a loss of the business carbon tax rebate. The details of the rebates are yet to be announced, however, rebates will be paid from 2019 through 2024, only if your 2023 return is filed on time. 2023 returns must be filed by July 15, 2024 in order to be eligible for the rebate.

Clean Economy Investment Tax Credits

• New 10% electric vehicle supply chain investment tax credit on cost of buildings used for:
  • Electric vehicle assembly;
  • Electric vehicle battery production; and
  • Cathode active material production.
• Applies to property that is acquired and becomes available for use on or after January 1, 2024
  • Fully eliminated by the end of 2034
    • If purchase a qualifying property in 2030, only able to receive up to four years of tax credits

Non-Compliance with Information Requests

• The CRA has the ability to levy fines and penalties to non-compliant taxpayers
  • CRA to issue notice of non-compliance
    • $50 per day penalty ($25,000 max) until request is complied with
  • Taxpayer to pay penalty of 10% of aggregate tax payable, for each tax year where tax payable exceeds $50,000
  • Previous the primary consequences of non-compliance was a contempt order

What does this mean for me?

CRA’s authority to assess fines and penalties to non-compliant tax payers has been enhanced and the new penalties are very steep. While we have never promoted the idea of just ignoring CRA when they call or send letters, doing so is now going to be substantially more costly with severe penalties.  Its best to respond when contacted.

Worried about fraud? Check us out on LinkedIn to learn how to recognize fraud, scams, and phishing

Crypto-Asset Reporting Framework

• Applies to crypto-asset service providers such as crypto exchanges, crypto-asset brokers and dealers, and operators of crypto-asset automated teller machines
• Providers to report to the CRA information on each customer and the annual value of each crypto-asset, including:
  • Exchanges between the crypto-asset and fiat currencies;
  • Exchanges for other crypto-assets; and
  • Transfers of the crypto-asset in exchange for goods or services with a value exceeding US$50,000.
• Providers required to obtain and report information on each of their customers, including name, address, date of birth, jurisdiction(s) of residence and taxpayer identification numbers
  • If customer is a corporation or other legal entity, information gathered is from the person(s) who exercise control over the entity
  • Applied to both Canadian resident and non-resident customers

What does this mean for me?

Those investing in cryptocurrencies have long thought that their holdings and transactions were “hidden” from CRA and therefore the requirement to report gains from sales/exchanges or income from staking and DeFi transactions was hard for CRA to catch.  That may have been true but the new reporting requirements by exchanges, brokers, dealers and even ATMs will provide CRA with details allowing CRA to track these investments. For anyone hiding their crypto assets, there are ways to “come clean” and avoid penalties but where gains or income have not been reported, taxes would still apply. Such as

Crypto-assets are also generally subject to the T1135 Foreign Income Verification Statement which comes with a non-filing penalty of up to $2,500 per year.  There are way to make the CRA aware of your asset holdings and doing so proactively (meaning you reach out to the CRA before they reach out to you) may protect you from the penalty. KBH has experience filing returns for those with crypto currency transactions and can help.

GST/HST on Face Masks and Face Shields

• Certain supplies made on or after May 1, 2024 are no longer zero-rated

Tobacco Tax

• Increase in excise duty rate by $4 per carton of 200 cigarettes
• In addition to $1.49 automatic inflation adjustment that came into effect April 1, 2024
• Effective April 16, 2024
• As of April 17, 2024 inventory tax of $0.02 per cigarette applied to existing holdings
  • Taxpayers have until June 30, 2024 to file a return and pay the inventory tax

What does this mean for me?

Taxing tobacco products is nothing new however a retroactive tax to align costs on current inventory to new purchases is also part of the proposal. An accurate inventory count as of April 17, 2024 will be important but also needs to be saved so that it can support the return that must be filed before June 30, 2024. This also means that the price of cigarettes will increase to offset the new excise & inventory tax.

Vaping Product Tax

• For Alberta, Saskatchewan, B.C. Manitoba, Yukon, and all of Atlantic Canada
  • $1.12 (previously $1) per 2 ml or fraction thereof for the first 10 ml of vaping substance in the vaping device or immediate container, previously $1 per
  • $1.12 (previously $1) per 10 ml or fraction thereof for amounts over the first 10 ml.
• For Ontario, Quebec, NWT, and Nunavut
  • $2.24 (previously $1) per 2 ml or fraction thereof for the first 10 ml of vaping substance in the vaping device or immediate container.
  • $2.24 (previously $1) per 10 ml or fraction thereof for amounts over the first 10 ml.

• Effective July 1, 2024

Housing Plan

• First time homebuyers able to get a 30yr mortgage
  • Only applies to the purchase of newly built homes
  • Effective as of August 1, 2024
  • Mortgage will be CMHC insured

Canada Pension Plan (CPP)

• Will coordinate with provinces to make amendments to the CPP including
  • Enhance the death benefit
  • Add a children’s benefit for part-time students whose parent is deceased;
  • Extend eligibility for children’s benefits where a disabled parent reaches age 65; and
  • End eligibility for survivor’s benefits to people who are legally separated

Canada Disability Benefit

• • Maximum annual benefit of $2,400 for eligible persons
  • Payments to commence in July 2025

Student Loan Forgiveness

• • Health care and social services professionals working in rural or remote areas expanded to include early childhood educators, dentists, dental hygienists, pharmacists, midwives, teachers, social workers, personal support workers, physiotherapists and psychologists
  • Applies to government student loans only

What does this mean for me?

It is unclear what the specific impact to individuals may be as the supporting details will come out when the legislation is introduced. If you have current, or plan to have government student loans in a qualified field, be sure to follow up on this measure.

Canada Learning Bond

• RESPs automatically opened for eligible children born in 2024 when they turn four years old
• If the child is older caregivers eligible to apply for the RESP and auto deposit of funds
• Maximum age to retroactively claim the Canada Learning Boc to increase to 30yrs old (up from 20yrs)

What does this mean for me?

If you are low income and not contributing to a RESP, the government will now do this for you. This will ensure some funds are available for post-secondary education. The government opening the RESP does not mean that you or qualified family members are unable to contribute. If this is of particular importance to you, it is best to open the account yourself even if all that is contributed is the Canada Learning Bond funds.

Charities & Qualified Donees

• Regulations to now expressly permit charities to issue official donation receipts electronically, provided that they contain all required information, they are issued in a secure and non-editable format and the charity maintains an electronic copy of the receipts
• The CRA is now able to communicate certain official notices digitally

Adjustments related to previously announced measures include:

• The addition of psychotherapists and counselling therapists to the list of health care practitioners whose professional services rendered to individuals are exempt from GST/HST
• Poposals relating to the underused housing tax
• Flow-through shares and the critical mineral exploration tax credit – lithium from brines
• Substantive Canadian-controlled private corporations.
• Implement the enhanced GST rental rebate for purpose-built rental housing
• Temporarily pause the federal fuel charge on deliveries of heating oil
• Denial of expenses for certain short-term rentals
• Extend by two years the 2% cap on the inflation adjustment on beer, spirit and wine excise duties, and to cut by half for two years the excise duty rate on the first 15,000 hectolitres of beer brewed in Canada

Budgets are often full of different tax and related measures that have far reaching impacts in different ways.  While we have tried to provide a factual summary of the key matters included in the budget and then show you how certain provisions may impact you directly, each situation is unique and may require specific analysis to better understand the actual implications.  Don’t hesitate to reach out to one of our team to explore your individual situation further.