2024 Federal Budget Highlights

In 2024, Canada introduced important tax updates affecting business owners, investors, and individuals. Here’s a streamlined summary of the key changes, with a focus on capital gains, business tax credits, and deductions. These updates provide new opportunities and considerations for Canadian taxpayers, especially for those in small business or corporate tax planning.

1. Capital Gains Inclusion Rate Increase

Starting June 25, 2024, the capital gains inclusion rate increased from 50% to 66.67%, which affects how much of your capital gains are taxable.

• For Individuals: The first $250,000 of annual capital gains still qualifies for the 50% rate.

• For Corporations and Trusts: All capital gains are now taxed at the 66.67% rate.

• Extended to Stock Options and Losses: This new rate also applies to stock option benefits and capital losses carried forward or backward.

• Planning Ahead: For those with significant gains, this change emphasizes the importance of strategic tax planning.

  
  

2. Expanded Lifetime Capital Gains Exemption (LCGE)

The lifetime capital gains exemption is now higher, giving business owners more room for tax savings.

• Higher Exemption: The LCGE has risen from $1,016,836 to $1.25 million, providing significant tax relief for eligible gains.

• Effective Date: This change applies to dispositions occurring on or after June 25, 2024.

• Indexed for Inflation: Starting in 2026, the exemption will adjust with inflation.

• Benefit to Small Business Owners: This increase especially benefits small business owners selling qualified shares, reducing taxable amounts.

  
  

3. Canadian Entrepreneurs’ Incentive

The new Canadian Entrepreneurs’ Incentive offers a halved capital gains inclusion rate on certain shares, designed to reward long-term business ownership.

• Lower Capital Gains Rate: Eligible shares now qualify for a reduced rate of 25% or 33.33%.

• Specific Requirements: Must be a founding shareholder with at least a 10% stake and actively involved in the business.

• Five-Year Ownership: Shareholders need to be involved for at least five years before selling the shares.

• Lifetime Cap: There’s a $2 million cap on eligible capital gains, phased in at $200,000 per year, making forward planning essential.

  
  

4. Employee Ownership Trust (EOT) Tax Exemption

The EOT exemption is designed to support business owners transferring ownership to employees, allowing for a $10 million tax-exempt capital gains benefit.

• Exemption Cap: Up to $10 million in capital gains can be tax-exempt for qualifying transfers to an EOT.

• Eligibility: The seller (or spouse) must have been active in the business for at least 24 months before the transfer.

• Shared Limit: Multiple vendors sharing the sale must divide the $10 million exemption.

• Retroactive Clauses: Disqualifying events within 36 months of transfer may reverse the exemption, so professional guidance is recommended.

  
  

5. Canada Carbon Rebate for Small Businesses

This automatic rebate helps small businesses manage carbon costs in provinces where federal fuel charges apply.

• Automatic Refundable Credit: Small businesses in eligible provinces receive an automatic rebate based on employee count and specific rates.

• Eligibility: Applies to Canadian-controlled private corporations (CCPCs) with fewer than 499 employees.

• Province-Based Rates: Credit amounts vary by province to offset local carbon costs.

• Streamlined by CRA: The CRA calculates and issues the rebate automatically for qualifying businesses.

  
  

6. Accelerated Capital Cost Allowance (CCA) for Clean Energy Investments

To support clean energy, Canada introduced accelerated CCA rates, helping businesses recover costs faster on green investments.

• Eligible Assets: Clean energy equipment, EV charging stations, patents, and data infrastructure qualify.

• High Depreciation Rates: Immediate tax relief on qualifying purchases through accelerated depreciation.

• Environmentally Focused: This incentive supports Canada’s environmental goals and business investments in green technology.

• Construction Requirements: Projects must begin construction between April 16, 2024, and January 1, 2031, to qualify.

  
  

7. Alternative Minimum Tax (AMT) Adjustments

Revisions to the Alternative Minimum Tax (AMT) are designed to ensure fair contributions from high-income earners.

• Increased AMT Rate: AMT has risen to 20.5%, targeting higher earners.

• Expanded Donation Credit: Philanthropic taxpayers can claim up to 80% of the Charitable Donations Tax Credit, reducing AMT impact.

• Exemption for Indigenous Trusts: Specific Indigenous trusts are exempt from AMT.

• Limited Interest Deduction: Only 50% of interest and financing costs for property income are deductible under AMT.

  
  

These tax updates provide new opportunities and considerations for Canadian businesses, particularly those focused on green investments or looking to benefit from updated capital gains exemptions. Staying informed on these changes allows business owners and individuals to make strategic tax decisions aligned with their financial goals.

For more guidance on how these changes may affect you or to optimize your tax planning, reach out to Sunny Dhillon CPA Inc., your partner in Canadian tax planning and small business accounting.