HVGP Commentary on the Federal Budget April 2024

Canada’s Deputy Prime Minister and Finance Minister Chrystia Freeland delivered the 2024 Federal Budget in the House of Commons on April 16, 2024. The budget proposed a wide array of changes impacting a variety of individuals, businesses, and other organizations. You can find our full summary here.

1.     Capital Gains Inclusion Rate – The inclusion rate will be increased from 50% to 2/3 effective for dispositions on and after June 25, 2024. For taxation years that straddle that date, the inclusion rate will depend on the date of disposition. Individuals (other than trusts) will retain the 50% inclusion rate on the first $250,000 of capital gains per year (or for the period from June 25 to December 31, 2024). Other taxpayers, including corporations and trusts, will be subject to the 2/3 inclusion rate on all capital gains. Similar measures will apply to stock option benefits and capital losses carried back or forward.

2.     Lifetime Capital Gains Exemption – The lifetime limit will be increased to $1,250,000 from its present level of $1,016,836, effective for dispositions on and after June 25, 2024. This amount will be indexed for inflation commencing in 2026.

3.     Canadian Entrepreneurs’ Incentive – Commencing in 2025, the capital gains inclusion rate on certain shares will be eligible for a halved capital gains inclusion rate (so 25% or 1/3). The requirements will be more stringent than eligibility for the lifetime capital gains exemption. For example, the taxpayer would be required to have been a founding shareholder with a significant interest (over 10% of votes and value) that owned the shares and was active in the business for at least five years immediately preceding the sale.

4.      Employee Ownership Trust Tax Exemption – Individuals disposing of shares to an employee ownership trust in a qualifying business transfer that occurs between January 1, 2014 and December 31, 2026 will be eligible for a $10 million capital gains exemption, as first announced in Fall Economic Statement 2023. Numerous requirements must be met, even beyond the requirements of a qualifying business transfer and the lifetime capital gains exemption. For example, the vendor (or their spouse or common-law partner) must have been actively engaged in the qualifying business for at least 24 months. Where there are multiple eligible vendors, they must share the $10 million limit. In the event of certain “disqualifying events” within 36 months following the transfer, the exemption would be retroactively reversed.

5.     Canada Disability Benefit – Payments to eligible Canadians would begin in July 2025, following the successful completion of the regulatory process and consultations with persons with disabilities. A maximum benefit amount of $2,400 per year would be available for individuals between the ages of 18 and 64 eligible for the disability tax credit.

6.     Alternative Minimum Tax – The proposals to amend the AMT regime to better focus on high-income individuals and certain trusts, as introduced in Budget 2023, would proceed, subject to certain changes. The available donation tax credit under the AMT would be increased to 80% of the credit claimed for regular income tax in order to address concerns that under the 2023 proposals, very philanthropic individuals may be subject to AMT. In addition, exemptions from the AMT regime are proposed for certain trusts established for the benefit of various Indigenous groups. There were no broad-based changes to address concerns that many smaller trusts would be subject to AMT. There was also no change to the 2023 proposal that only 50% of interest and financing costs incurred to earn income from property would be deductible for AMT purposes.

7.     Canada Carbon Rebate for Small Businesses – An accelerated and automated process to provide direct carbon rebates (a refundable tax credit) to CCPCs in the provinces where the federal fuel charge applies would be introduced (Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador). The rebate would be calculated by multiplying the number of persons employed in the province by a payment rate to be specified by the Minister of Finance. To be eligible for the rebate, the corporation would need to have had no more than 499 employees throughout Canada in the applicable calendar year. The payment rates for each applicable province for the 2019-20 to 2023-24 fuel charge years will be provided once sufficient information is available from the 2023 taxation year.

8.     Accelerated CCA – An accelerated CCA rate of 10% for new eligible purpose-built rental projects that begin construction on or after April 16, 2024 and before January 1, 2031 would be provided. Eligible property would be residential complexes with 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. In addition, immediate 100% CCA expensing for new additions of property in respect of the following three classes would be provided if the property is acquired on or after April 16, 2024 and becomes available for use before January 1, 2027: 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); and class 50 (general-purpose electronic data-processing equipment and systems software).

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