2024 Federal Budget Highlights 

On April 16th, Finance Minister Chrystia Freeland delivered the 2024 Federal Budget. We have highlighted some notable tax measures announced:

Capital gains inclusion rate

The budget 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 which exceeds $250,000 for individuals. The new inclusion rate will apply to capital gains realized on or after June 25th, 2024, and the $250,000 threshold will be fully available for individuals in 2024.

Lifetime Capital Gains Exemption

The lifetime capital gains exemption (LCGE) currently provides an individual a tax exemption of up to $1,016,836 in capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property. The budget proposes an increase to the LCGE up to $1.25 million and is expected to continue to be indexed to inflation in 2026.

Canadian Entrepreneurs’ Incentive

This new proposed incentive aims to reduce the capital gains tax on the disposition of qualifying shares by an eligible individual, by halving the prevailing capital gains inclusion rate. The incentive is a lifetime limit of $2 million in capital gains per individual over their lifetime, phased in by $200,000 per year beginning in 2025.

Changes to Alternative Minimum Tax (AMT)

AMT is an alternative method to calculate tax liability in Canada and can be applicable in years where an individual claims the capital gains deduction/capital gains exemption. Tax owing is calculated under the standard method, applying tax credits and deductions, and compared to the AMT, where you don’t receive the same credits and deductions but are taxed at a lower tax rate. The AMT is used if it results in a higher tax owing, and this amount can be recovered over the next seven years against regular income tax. Several changes are proposed to the AMT in budget 2024:

    • Charitable donations to be revised to allow individuals to claim 80 per cent instead of 50 per cent of the charitable donation tax credit when calculating AMT
    • 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
    • Allow certain disallowed credits under the AMT to be eligible for the AMT carry-forward, including the federal political contribution tax credit, investment tax credits, and labour-sponsored funds tax credit

Notice of Non-Compliance

The proposed amendment to the Income Tax Act would allow the CRA to issue a “notice of non-compliance”, to a person which has not complied with information or assistance requests. When a notice of non-compliance is issued to a taxpayer, the normal reassessment period would be extended by the period of the time the notice is outstanding. Additionally, the CRA can impose a penalty of $50 per day for each day the notice is outstanding, up to a maximum of $25,000.

Avoidance of tax debts

The budget proposed to introduce legislative measures to strengthen the tax debt anti-avoidance rule, applicable where taxpayers engage in the transferring assets to non-arm’s length individuals to avoid tax liabilities. The supplementary rule will allow the government to challenge tax avoidance planning in a less costly and time-consuming manner when a third party is involved in a series of transactions to avoid liability. The current penalty of 50% of the tax attempted to be avoided and $100,000 plus any amount the related person is entitled to receive for the planning activity would be extended to avoidance planning which is subject to the supplementary rule.

 

This article is intended for general information purposes only and does not constitute professional advice.  Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or email us for further advice.