Federal Budget 2024: Fairness for every generation (“Budget 2024”) was tabled April 16, and with it many new tax measures. This article briefly summarizes the key tax announcements from Budget 2024. Notable announcements in Budget 2024 include:
- increases to the Lifetime Capital Gains Exemption and the Capital Gains Inclusion Rate,
- the new Canada Carbon Rebate for Small Businesses,
- details of the Clean Electricity Investment Tax Credit,
- adjustments to the Clean Technology Manufacturing Investment Tax Credit,
- introduction of the Canadian Entrepreneurs' Incentive, and
- amendments and revisions to the Alternative Minimum Tax.
You can access in-depth technical commentary from the experts at Dentons Canada LLP in the 2024 Federal Budget Special Report. AnswerConnect subscribers can access the Special Report and the Federal Budget documents on the main page of AnswerConnect, and links to these documents in the nightly “Tax News Headlines” email.
Personal income tax measures
Lifetime Capital Gains Exemption
The amount of the Lifetime Capital Gains Exemption (“LCGE”) is currently $1,016,836 in 2024 and indexed to inflation. Budget 2024 proposes to increase the LCGE to apply to up to $1.25 million of eligible capital gains, applicable to dispositions that occur on or after June 25, 2024. Indexation of the LCGE would resume in 2026.
Canadian Entrepreneurs' Incentive
Budget 2024 proposes to introduce the Canadian Entrepreneurs' Incentive, which would reduce the tax rate on capital gains on the disposition of qualifying shares by an eligible individual. Specifically, this incentive would provide for a capital gains inclusion rate that is one half the prevailing inclusion rate, on up to $2 million in capital gains per individual over their lifetime. The lifetime limit would be phased in by increments of $200,000 per year, beginning on January 1, 2025, before ultimately reaching a value of $2 million by January 1, 2034.
Under the two-thirds capital gains inclusion rate proposed in Budget 2024, this measure would result in an inclusion rate of one third for qualifying dispositions. This measure would apply in addition to any available capital gains exemption.
This measure would apply to dispositions that occur on or after January 1, 2025.
Capital gains inclusion rate
Budget 2024 proposes to increase the capital gains inclusion rate from one half to two thirds for corporations and trusts, and from one half to two thirds on the portion of capital gains realized in the year that exceed $250,000 for individuals, for capital gains realized on or after June 25, 2024.
The $250,000 threshold would effectively apply to capital gains realized by an individual, either directly or indirectly via a partnership or trust, net of any:
- current-year capital losses;
- capital losses of other years applied to reduce current-year capital gains; and
- capital gains in respect of which the Lifetime Capital Gains Exemption, the proposed Employee Ownership Trust Exemption, or the proposed Canadian Entrepreneurs' Incentive is claimed.
Claimants of the employee stock option deduction would be provided a one-third deduction of the taxable benefit to reflect the new capital gains inclusion rate, but would be entitled to a deduction of one half the taxable benefit up to a combined limit of $250,000 for both employee stock options and capital gains.
Net capital losses of prior years would continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset.
Volunteer Firefighters and Search and Rescue Volunteers Tax Credits
Budget 2024 proposes to double the credit amount for the Volunteer Firefighters Tax Credit and the Search and Rescue Volunteers Tax Credit from $3,000 to $6,000, applicable to the 2024 and subsequent taxation years.
Alternative Minimum Tax
Budget 2023 announced amendments to the Income Tax Act that would change the Alternative Minimum Tax (“AMT”) calculation. Draft legislative proposals to implement these changes were published for consultation in the summer of 2023.
Budget 2024 proposes that the tax treatment of charitable donations be revised to allow individuals to claim 80% (instead of the previously proposed 50%) of the Charitable Donation Tax Credit when calculating AMT.
Budget 2024 proposes several additional amendments to the AMT proposals which would:
- fully allow deductions for the Guaranteed Income Supplement, social assistance, and workers' compensation payments;
- allow individuals to fully claim the federal logging tax credit under the AMT;
- fully exempt Employee Ownership Trusts from the AMT; and
- allow certain disallowed credits under the AMT to be eligible for the AMT carryforward (i.e., the federal political contribution tax credit, investment tax credits, and labour-sponsored funds tax credit).
Budget 2024 proposes to provide an exemption from the AMT for Indigenous settlement and community trusts. Parties interested in these proposed exemptions for Indigenous settlement and community trusts are invited to send written representations to the Department of Finance Canada, Tax Policy Branch at [email protected] by June 28, 2024.
Canada Child Benefit
Budget 2024 proposes to amend the Income Tax Act to extend eligibility for the Canada Child Benefit (“CCB”) in respect of a child for six months after the child's death (the "extended period"), if the individual would have otherwise been eligible for the CCB in respect of that particular child. 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.
This measure would be effective for deaths that occur after 2024.
Disability Supports Deduction
Budget 2024 proposes to expand the list of expenses recognized under the Disability Supports Deduction, subject to the specified conditions, such as the cost of:
- an ergonomic work chair (including an ergonomic assessment);
- a bed positioning device (including an ergonomic assessment);
- purchasing a mobile computer cart;
- purchasing an alternative input device to allow the individual to use a computer;
- purchasing a digital pen device to allow the individual to use a computer;
- purchasing a navigation device for low vision; and
- purchasing memory or organizational aids.
Budget 2024 also proposes that expenses for service animals be recognized under the Disability Supports Deduction.
This measure would apply to the 2024 and subsequent taxation years.
Employee ownership trust tax exemption
Budget 2023 proposed tax rules to facilitate the creation of employee ownership trusts (“EOTs”). These legislative proposals are currently before Parliament in Bill C-59. The 2023 Fall Economic Statement proposed to exempt the first $10 million in capital gains realized on the sale of a business to an EOT from taxation, subject to certain conditions. Budget 2024 provides further details on the proposed exemption and conditions.
The exemption would be available to an individual (other than a trust) on the sale of shares to an EOT where the following conditions are met:
- The individual, a personal trust of which the individual is a beneficiary, or a partnership in which the individual is a member, disposes of shares of a corporation that is not a professional corporation.
- The transaction is a qualifying business transfer in which the trust acquiring the shares is not already an EOT or a similar trust with employee beneficiaries.
- Throughout the 24 months immediately prior to the qualifying business transfer,
- the transferred shares were exclusively owned by the individual claiming the exemption, a related person, or a partnership in which the individual is a member; and
- over 50% of the fair market value of the corporation's assets were used principally in an active business.
- At any time prior to the qualifying business transfer, the individual (or their spouse or common-law partner) has been actively engaged in the qualifying business on a regular and continuous basis for a minimum period of 24 months.
- Immediately after the qualifying business transfer, at least 90% of the beneficiaries of the EOT must be resident in Canada.
If a disqualifying event occurs within 36 months of the qualifying business transfer, the exemption would not be available. Where the individual has already claimed the exemption, it would be retroactively denied.
The normal reassessment period of an individual for a taxation year in respect of this exemption is proposed to be extended by three years.
Budget 2024 also proposes to expand qualifying business transfers to include the sale of shares to a worker cooperative corporation. This would allow an individual to claim an exemption on selling a business to a worker cooperative. A qualifying business transfer to a worker cooperative would also be eligible for the 10-year capital gains reserve and the 15-year exception to the shareholder loan and interest benefit rules announced in Budget 2023.
This measure would apply to qualifying dispositions of shares that occur between January 1, 2024 and December 31, 2026.
Charities and qualified donees
Budget 2024 proposes to extend the period for which qualifying foreign charities are registered as a qualified donee from 24 months to 36 months. In addition, foreign charities would be required to submit an annual information return to the CRA.
Budget 2024 proposes to permit the CRA to communicate certain official notices digitally, where the charity has opted to receive information from the CRA electronically. Budget 2024 proposes to revoke a charity’s registration effective upon the publication of an official notice of revocation on a government webpage.
Budget 2024 proposes a number of changes to simplify the issuance of official donation receipts and to align the process for issuing receipts with modern practices of charities. Budget 2024 also proposes to permit charities to issue official donation receipts electronically.
Measures relating to the extension of the registration period for foreign charities would apply to foreign charities registered after Budget Day. New reporting requirements for foreign charities would apply to taxation years beginning after Budget Day. All remaining measures would apply upon Royal Assent.
Home buyers' plan
Budget 2024 proposes to increase the home buyers' plan (“HBP”) withdrawal limit from $35,000 to $60,000. This increase would also apply to withdrawals made for the benefit of a disabled individual. This measure would apply to the 2024 and subsequent calendar years in respect of withdrawals made after Budget Day.
Budget 2024 proposes to temporarily defer the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022 and December 31, 2025. Accordingly, the 15-year repayment period would start the fifth year following the year in which a first withdrawal was made.
Business income tax measures
Clean Electricity investment tax credit
Budget 2024 provides the design and implementation details of the Clean Electricity investment tax credit announced in Budget 2023. Eligible corporations must be:
- taxable Canadian corporations;
- provincial or territorial Crown corporations;
- corporations owned by municipalities;
- corporations owned by Indigenous communities; or
- pension investment corporations.
The following types of equipment would be eligible for the credit:
- equipment used to generate electricity from solar, wind, or water energy;
- concentrated solar energy equipment, but limited to equipment used to generate electricity;
- equipment used to generate electricity, or both electricity and heat, from nuclear fission;
- equipment used for the purpose of generating electricity, or both electricity and heat, solely from geothermal energy;
- equipment that is part of a system used to generate electricity, or both electricity and heat, from specified waste materials;
- stationary electricity storage equipment and equipment used for pumped hydroelectric energy storage, but excluding equipment that uses any fossil fuel in operation;
- equipment that is part of an eligible natural gas energy system; and
- equipment and structures used for the transmission of electricity between provinces and territories.
Qualifying expenditures could include capital expenditures to refurbish existing facilities.
The credit would apply to eligible property that is:
- acquired and becomes available for use on or after Budget Day and before 2035, provided it has not been used for any purpose before its acquisition; and
- not part of a project that began construction before March 28, 2023.
Clean Technology Manufacturing Investment tax credit
Budget 2024 proposes adjustments to the Clean Technology Manufacturing investment tax credit to provide greater support to businesses engaged in the production of qualifying materials at polymetallic projects. Budget 2024 proposes to clarify that the value of qualifying materials would be used as the appropriate output metric when assessing the extent to which property is used or is expected to be used for qualifying mineral activities producing qualifying materials.
Budget 2024 also proposes to modify eligible expenditures to include investments in eligible property used in qualifying mineral activities that are expected to produce primarily qualifying materials at mine or well sites, including tailing ponds and mills located at these sites. The "primarily" test would generally mean that eligible property must be used or expected to be used for activities in which 50% or more of the financial value of the output comes from qualifying materials.
To mitigate against the effects of mineral price volatility on the potential recapture of the tax credit, Budget 2024 also proposes to provide a safe harbour rule applicable to the recapture rule.
These changes would apply for property that is acquired and becomes available for use on or after January 1, 2024.
Accelerated Capital Cost Allowance (“CCA”)
Budget 2024 proposes to provide an accelerated CCA of 10% for new eligible purpose-built rental projects that begin construction on or after Budget Day and before January 1, 2031, and are available for use before January 1, 2036. Projects that convert existing non-residential real estate into a residential complex would be eligible if the conditions are met. The cost of a new addition to an existing structure would be eligible, provided the addition meets the conditions.
Immediate expensing for productivity-enhancing assets
Budget 2024 proposes to provide immediate expensing for new additions of property in respect of 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), if the property is acquired on or after Budget Day and becomes available for use before January 1, 2027. The enhanced allowance would provide a 100% first-year deduction and would be available only for the year in which the property becomes available for use.
Property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer would be eligible for the accelerated CCA only if both of the following conditions are met:
- neither the taxpayer nor a non-arm's-length person previously owned the property; and
- the property has not been transferred to the taxpayer on a tax-deferred "rollover" basis.
Canada Carbon Rebate for Small Businesses
Budget 2024 proposes to return a portion of fuel charge proceeds from a province via the new Canada Carbon Rebate for Small Businesses, an automatic, refundable tax credit for eligible businesses sized in proportion to the number of persons they employ in the province.
With respect to the 2019–20 to 2023–24 fuel charge years, the 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. Additionally, to be eligible for a credit in respect of an applicable fuel charge year, the corporation would need to have had no more than 499 employees throughout Canada in the calendar year in which the fuel charge year begins.
The tax credit amount in respect of an eligible corporation for an applicable fuel charge year would be determined for each applicable province in which the eligible corporation had employees in the calendar year in which the fuel charge year begins. The tax credit amount would be equal to the number of persons employed by the eligible corporation in the province in that calendar year multiplied by a payment rate specified by the Minister of Finance for the province for the corresponding fuel charge year.
The tax credit would return proceeds for future fuel charge years, including 2024–25, in a similar manner.
Interest deductibility limits—purpose-built rental housing
Legislative proposals to implement the excessive interest and financing expenses limitation (“EIFEL”) rules are currently before Parliament in Bill C-59. The EIFEL rules provide an exemption for interest and financing expenses incurred in respect of arm's length financing for certain public-private partnership infrastructure projects. Budget 2024 proposes expanding this exemption to also 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.
This change would apply to taxation years that begin on or after October 1, 2023.
Non-compliance with information requests
Budget 2024 proposes several amendments to the information gathering provisions in the Income Tax Act. These proposed amendments are intended to enhance the efficiency and effectiveness of tax audits and facilitate the collection of tax revenues on a timelier basis. These amendments would come into force on Royal Assent of the enacting legislation.
Avoidance of tax debts
Budget 2024 proposes to introduce a supplementary rule to strengthen the tax debt anti-avoidance rule, applicable in the following circumstances:
- there has been a transfer of property from a tax debtor to another person;
- as part of the same transaction or series of transactions, there has been a separate transfer of property from a person other than the tax debtor to a transferee that does not deal at arm's length with the tax debtor; and
- one of the purposes of the transaction or series is to avoid joint and several, or solidary, liability.
Where these conditions are met, the property transferred by the tax debtor would be deemed to have been transferred to the transferee for the purposes of the tax debt avoidance rule.
The Income Tax Act contains a penalty for those who engage in, participate in, assent to, or acquiesce in planning activity that they know, or would reasonably be expected to know, is tax debt avoidance planning. Budget 2024 proposes to extend this penalty to tax debt avoidance planning that is subject to the proposed supplementary rule. Budget 2024 further proposes that taxpayers who participate in tax debt avoidance planning be jointly and severally, or solidarily, liable for the full amount of the avoided tax debt, including any portion that has effectively been retained by the planner.
These measures would apply to transactions or series of transactions that occur on or after Budget Day.
Mutual fund corporations
Budget 2024 proposes amendments to the Income Tax Act to preclude 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 that consists of any combination of corporations, individuals, trusts, and partnerships that do not deal with each other at arm's length). Exceptions would be provided to ensure that the measure does not adversely affect mutual fund corporations that are widely held pooled investment vehicles.
This measure would apply to taxation years that begin after 2024.
Synthetic equity arrangements
Budget 2024 proposes to remove the tax-indifferent investor exception (including the exchange traded exception) to the anti-avoidance rule. This measure would simplify the anti-avoidance rule and prevent taxpayers from claiming the dividend received deduction for dividends received on a share in respect of which there is a synthetic equity arrangement.
This measure would apply to dividends received on or after January 1, 2025.
Manipulation of bankrupt status
Budget 2024 proposes to repeal the exception to the debt forgiveness rules for bankrupt corporations and the loss restriction rule applicable to bankrupt corporations. This change would subject bankrupt corporations to the general rules that apply to other corporations whose commercial debts are forgiven.
These proposals would apply to bankruptcy proceedings that are commenced on or after Budget Day.
International tax measures
Crypto-Asset Reporting Framework and the Common Reporting Standard
Budget 2024 proposes to implement the Crypto-Asset Reporting Framework (“CARF”) in Canada. Budget 2024 also proposes to implement amendments to the Common Reporting Standard (“CRS”) that have been endorsed by the OECD in connection with the CARF.
These measures would apply to the 2026 and subsequent calendar years.
Withholding for non-resident service providers
Budget 2024 proposes to provide the CRA with the legislative authority to waive the withholding requirement for payments to non-resident service providers, over a specified period, if either of the following conditions are met:
- the non-resident would not be subject to Canadian income tax in respect of the payments because of a tax treaty between its country of residence and Canada; or
- the income from providing the services is exempt income from international shipping or from operating an aircraft in international traffic.
This measure would come into force on Royal Assent of the enacting legislation.
Sales tax measures
Extending GST relief to student residences
To ensure that universities, public colleges, and school authorities can claim the Enhanced (100%) GST Rental Rebate, Budget 2024 proposes to modify the Excise Tax Act to allow them to apply the normal GST/HST rules that apply to other builders (i.e., paying GST/HST on the final value of the building) in respect of new student housing projects.
Additionally, Budget 2024 proposes to amend the Excise Tax Act and its regulations to relax the rebate conditions for new student housing provided by universities, public colleges, and school authorities that operate on a not-for-profit basis. These are generally educational institutions that would currently qualify for the Public Service Body rebates under the GST/HST. The relaxed rebate conditions would allow these entities to claim the 100% rebate in respect of any new student residence that they acquire or construct provided it is primarily for the purpose of providing a place of residence for their students. That is, it would no longer be necessary that the first use of a unit in the student housing project be as a primary place of residence of an individual under a lease for a period of at least 12 months. The relaxed rebate conditions would not be extended to universities, public colleges, and school authorities that operate on a for-profit basis.
The proposed measures would apply to student residences that begin construction after September 13, 2023 and before 2031, and that complete construction before 2036.
GST/HST on face masks and face shields
Budget 2024 proposes to amend the Excise Tax Act to repeal the temporary zero-rating of certain face masks or respirators and certain face shields under the GST/HST. The temporary relief announced in the 2020 Fall Economic Statement was proposed to be in effect until the use of face coverings was no longer broadly recommended by public health officials for the COVID-19 pandemic.
This measure would apply to supplies made on or after May 1, 2024.
Tobacco and vaping product taxation
Excise duty on tobacco
Budget 2024 announces the Government's intention to increase the tobacco excise duty rate by $4 per carton of 200 cigarettes (i.e., for a total of $5.49 including the automatic inflationary adjustment of $1.49 per carton of 200 cigarettes that took effect on April 1, 2024), along with corresponding increases to the excise duty rates for other tobacco products. Inventories of cigarettes held by certain manufacturers, importers, wholesalers, and retailers at the beginning of the day after Budget Day would be subject to an inventory tax of $0.02 per cigarette to account for the $4 increase. Taxpayers would have until June 30, 2024 to file a return and pay the cigarette inventory tax.
This measure would come into force on the day after Budget Day.
