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Learn how the federal government’s 2024 budget can affect you and your money.
The federal government touted Budget 2024 as providing “fairness for every generation” of Canadians. There are plenty of tax changes, especially for higher income earners, as well as incentives for renters and first-time home buyers. Here is what you need to know.
There has been speculation in recent years about an increase in the capital gains inclusion rate. Currently, one-half of a capital gain is taxable, a so-called 50% inclusion rate. Budget 2024 finally introduced an increase but only for certain capital gains.
Capital gains realized by corporations and trusts will now be subject to a two-thirds capital gains inclusion rate instead of just one half. Individuals with a capital gain of more than $250,000 will also pay tax at the higher rate. This rate will also apply to stock option income, by reducing the stock option deduction to one-third for employees with option income exceeding $250,000. This inclusion rate change comes into effect on June 25, 2024. (Read: How will the changes to capital gains in Canada affect tech sector?)
The lifetime capital gains exemption applies to business owners who sell qualified shares of their small business corporation or sell their qualified farm or fishing property. The exemption allows a tax-free capital gain of up to $1,016,836 for each taxpayer. The budget proposes to increase this limit for sales after June 25, 2024, to $1,250,000. In 2026, the limit would continue to increase with inflation.
The budget also introduces a new Canadian Entrepreneur’s Incentive, effective January 1, 2025, that reduces the capital-gains inclusion rate on certain taxable capital gains by one-half. It applies to founding investors in certain corporations, but excludes professional corporations, a corporation whose principal asset is the reputation or skill of one or more employees, or businesses in the financial, insurance, real estate, food, accommodation, arts, recreation, entertainment, consulting or personal care services sectors. The limit will be $2 million but introduced in $200,000 increments beginning on January 1, 2025, and reaching $2 million by January 1, 2034.
The government has expanded on the Alternative Minimum Tax (AMT) changes from the 2023 budget. In particular, the AMT calculation for taxpayers with large tax deductions and/or tax credits will now allow 80% of the charitable donation tax credit instead of 50%, so as not to discourage philanthropy. (Read: The best charities to donate to for impact in Canada)
The 15% Mineral Exploration Tax Credit for taxpayers who purchase flow through shares has been extended from the March 31, 2024, expiration date to March 31, 2025.
Other than the increased capital gains inclusion rate for corporations, the budget did not include changes that would impact most small business owners.
The government provided further clarity on the Clean Energy Investment Tax Credit and Clean Technology Manufacturing Investment Tax Credit to purchase equipment used to generate electricity from solar, wind, water, nuclear fission, or geothermal energy, or produce qualifying materials such as cobalt, copper, graphite, lithium, nickel, and rare earth elements.
Accelerated capital cost allowance (CCA) will be available to claim quicker tax deductions (no half-year rule) for new purpose-built rental real estate projects that begin construction before January 1, 2031, and become available for use by December 31, 2035. A 100% deduction will be available for productivity-enhancing assets like patents (class 44), data network infrastructure equipment (class 46), and general-purpose electronic data-processing equipment and systems software (class 50). This immediate expensing applies to purchase between budget day and December 31, 2026.
The budget introduces a new Canada Carbon Rebate for Small Businesses for corporations with fewer than 500 employees. The credit will be automatically calculated and return a portion of the carbon tax collected from the provinces of Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. The credit will be based on the number of employees the business has in each province. (Read: What is the Canada Carbon Rebate? Plus, dates and amounts for 2024 rebates)
The budget includes billions in spending and loans to increase construction of new homes. This includes building homes on Canada Post properties, National Defence lands, converting underused federal offices into homes, and taxing vacant lands to incentivize construction, amongst other measures.
The new Canadian Mortgage Charter aims to help renters by using a renter’s payment history towards their credit assessment when applying for a mortgage. Banks, fintechs, and credit bureaus are being encouraged to allow renters to optionally share reporting on rent payments to improve their credit scores.
Renters will also benefit from a new Tenant Protection Fund that will provide funding for tenant legal and information services as well as to organizations that promote renters’ rights. A new Canadian Renters’ Bill of Rights will also protect against unfair landlord practices and provide more transparent rental pricing. The feds also propose a new national lease agreement that is standardized. (Read: Renting vs. owning: Can you be financially secure without buying a home?)
First-time homebuyers are addressed by the Canadian Mortgage Charter by the introduction of 30-year amortizations for the purchase of newly constructed homes by first-time buyers. This is five years longer than the current maximum amortization period and would mitigate some of the sting of higher interest rates and high prices.
These new 30-year insured mortgage products are to be available as of August 1, 2024. The budget also mentions the potential of expanding access to 30-year insured mortgage amortizations to other borrowers.
This could impact mortgage rates, but here’s a sampling of the current rates available.
First-time buyers will also benefit from an increased Home Buyers’ Plan (HBP) that will allow them to withdraw up to $60,000 from their registered retirement savings plans (RRSPs). This is a significant increase from the current $35,000 limit. Combined with the first home savings account (FHSA) introduced in 2023, renters with the capacity to save—or parents and grandparents who can afford to gift funds to their children and grandchildren—can definitely take advantage of expanded tax-preferred savings options. The new HBP limit applies immediately.
Another HBP change is to temporarily increase the starting point for repayments by three years to begin in the fifth year after the withdrawal.
The budget proposes a consultation to expand the list of investments that can be purchased for RRSPs, FHSAs, registered retirement income funds (RRIFs), tax-Free savings accounts (TFSAs), registered education savings plans (RESPs), registered disability savings plans (RDSPs) and deferred profit sharing plans (DPSPs).
Some of the items under consideration include:
The budget will provide $1.5 billion over five years to implement the recently introduced Pharmacare Act. This is the first phase of National Universal Pharmacare, meant to make essential medications more accessible and affordable. It will focus on health care needs of women including contraceptives, as well as diabetes medication like insulin.
Funding of $6.1 billion has been announced for the Canada Disability Benefit over the next six years. Payments of up to $2,400 for low-income taxpayers aged 18 to 64 could apply if they qualify for the Disability Tax Credit. It is estimated this will affect more than 600,000 Canadians.
The government also intends to make it easier and less administratively burdensome to obtain the Disability Tax Credit.
The Disability Supports Deduction will be expanded to allow taxpayers to deduct additional expenses on their tax return, including service animals, assistive keyboards, braille display, digital pens, speech recognition devices, ergonomic chairs, and bed positioning devices.
The budget proposes an increase to the $2,500 Canada Pension Plan (CPP) death benefit to $5,000 for certain individuals as well as increasing children’s benefits.
The government anticipates a $40-billion deficit in fiscal 2024-25. Spending on several new measures has been partially supplemented through tax increases on high-income personal taxpayers, corporations and trusts.
Most of the new spending will be on housing and health, so this is definitely a budget that will have an impact on every generation of Canadians as a result.
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