August 2024 Legislative Amendments: A Detailed Comparison with Budget 2024
In August 2024, the Department of Finance introduced important amendments to the tax proposals originally outlined in Budget 2024. These changes have significant implications for business owners, investors, and estate planners. Here’s a detailed comparison of what was initially proposed and the revisions made in August.
Capital Gains Inclusion Rate
Budget 2024 Proposal:
The capital gains inclusion rate was set to increase from 50% to 66.67% as of June 25, 2024. This meant that a greater portion of investment gains would be taxed, with a proposed blended rate for gains realized around the cutoff date. The government intended this increase to align with the goal of raising more revenue from capital income, affecting individuals, corporations, and certain trusts.
August 2024 Changes:
The blended rate approach was eliminated. Instead, a clear division was established: gains realized before June 25, 2024, are taxed at 50%, while those after this date are taxed at 66.67%. This clarification helps taxpayers better plan their sales and understand the exact tax implications. Additionally, the lifetime capital gains exemption was increased to $1.25 million, providing more flexibility for those with substantial gains.
Alternative Minimum Tax (AMT)
Budget 2024 Proposal:
The AMT was designed to ensure that high-income earners and corporations pay a fair minimum level of tax, even if they use deductions and credits to lower their regular tax liability. The proposed changes increased the taxable portion of capital gains and reduced the stock option deduction from one-half to one-third. Other deductions, such as interest on borrowed funds and charitable donations, were also limited, potentially increasing the tax burden for affected individuals.
August 2024 Changes:
In response to concerns, the government restored full deductibility for some expenses and partially restored charitable donation allowances to 80% for AMT purposes. These adjustments make the AMT less severe, addressing taxpayer concerns while maintaining the integrity of the tax system. This ensures that while high-income earners contribute their fair share, they are not disproportionately penalized by the AMT.
Canadian Entrepreneurs’ Incentive
Budget 2024 Proposal:
This incentive aimed to encourage entrepreneurship by reducing the capital gains inclusion rate on the sale of qualifying business shares. However, the original proposal included strict conditions: the seller had to be a "founding investor," owning more than 10% of the business for at least five years, and actively involved in the business. The incentive was intended to gradually phase in, with the full $2 million lifetime exemption not being fully available until 2034.
August 2024 Changes:
The amendments relaxed these stringent conditions significantly. The ownership requirement was reduced to 5%, and the active involvement period was shortened to any three years since the business’s founding. Moreover, the phase-in of the $2 million lifetime exemption was accelerated, making the full amount available by 2029. This change provides more immediate benefits to a broader range of entrepreneurs, reflecting a more inclusive approach to supporting small business owners.
Trust Reporting Requirements
Budget 2024 Proposal:
The initial proposal introduced broad and complex reporting requirements for trusts, including bare trusts. These requirements aimed to increase transparency and prevent tax evasion but raised concerns about the compliance burden on trustees, especially for simple trust arrangements.
August 2024 Changes:
In response to feedback, the government narrowed the scope of these reporting requirements. The amendments provided clearer definitions and introduced specific exemptions for certain types of trusts, such as joint bank accounts, bare trusts, and trusts where parents are on the title for mortgage purposes. These changes reduce the compliance burden while maintaining the goal of increased transparency in the tax system.
Estate Loss Carrybacks
Budget 2024 Proposal:
Originally, estate loss carrybacks were allowed within a one-year timeframe to offset the deceased’s final tax return. This provision aimed to provide some relief for estates that incurred losses after the death of the individual.
August 2024 Changes:
The carryback period was extended to three years, providing executors with more time and flexibility to manage the estate’s tax affairs. The process was also simplified, with the introduction of a prescribed form to be used instead of requiring an amended return. These changes make it easier for executors to navigate the complexities of estate administration, particularly in cases where asset values fluctuate after the owner’s death.
What’s Next?
These legislative changes underscore the importance of staying informed and proactive in your tax planning. Whether you're a business owner, investor, or estate planner, understanding these updates is crucial to optimizing your financial strategy. At Lekadir LLP, our team of tax professionals is here to help you navigate these changes and align your plans with the latest tax regulations.
Contact us today to schedule a consultation. Let us help you protect your wealth and achieve your financial goals in this evolving landscape.
