Key Takeaways from Federal Budget 2024

Budget 2024 was released earlier today and contains a number of changes that may impact your business.  Key highlights include:

Capital Gains Inclusion Rate - increase 

Effective from June 25, 2024, the inclusion rate for capital gains will increase from 50% to ~ 67%. Applies to gains from June 25 onward. Specific relief applies for individuals, except trusts, to allow for the (old) 50% rate on the first $250,000 of capital gains.

Lifetime Capital Gains Exemption (LCGE) - increase

The budget proposes an increase to the LCGE to $1,250,000 (currently $1,016,836) for gains on or after June 25, 2024. This updated exemption limit will go back to being inflation-adjusted in 2026.

Alternative Minimum Tax (AMT) 

The 2023 Budget's proposals to change the AMT to target certain high-income individuals and trusts have been refined. Notably, a positive increase in the donation tax credit under AMT to 80% of the regular tax credit.

Canadian Entrepreneurs’ Incentive (CEI) – new program

Effective 2025, the CEI will allow for a capital gains inclusion rate of either 25% or 33% on certain share dispositions, albeit with stricter eligibility criteria compared to the LCGE (see item 2. above). Included in the qualification criteria: Founders must have held a significant shareholding and been active in the business for at least 5 years.

Canada Carbon Rebate (CCR) for Small Businesses – increase (rebate)

The Federal government is implementing a system to automatically provide carbon rebates to small businesses in provinces where the federal fuel charge would apply. Applicable to companies with 499 or fewer employees in Canada in the applicable year.

Employee Ownership Trust (EOT) Tax Exemption

Individuals who sell their qualifying business shares to an EOT may be eligible for a $10 million capital gains exemption. This exemption, effective January 1, 2014, to December 31, 2026, includes a number of conditions, including some that stretch as far as evaluating events that take place up to 36 months post-transfer of shares.

Accelerated Capital Cost Allowance (CCA) for Housing – increase (greater ‘write-off’)

New housing projects that qualify with construction beginning between April 16, 2024, and January 1, 2031, will benefit from a 10% accelerated CCA rate (i.e., tax depreciation). Additionally, full immediate expensing (i.e., 100% expense in the year) will be available for certain property types acquired from April 16, 2024, till the end of 2026.

The above provides a very brief overview of some of the items addressed in the Budget. We will release a more detailed background shortly.