Last updated: Apr. 26, 2024
Federal Budget 2024 Highlights
On April 16, 2024, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, tabled the federal government’s budget titled “Fairness for Every Generation.”
The Budget is anticipated to result in a deficit of $39.8 billion 2024 – 2025 budget year, and $38.9 billion for 2025 – 2026.
Here we highlight key tax measures and other announcements of interest in Budget 2024 relevant to small business owners, farmers, families, and individuals across Canada.
Corporate and Personal Tax Rates
Corporate tax rates were not changed and are as follows:
| Corporate Income | 2024 Rate | 2025 Rate |
| General | 15.0% | 15.0% |
| M&P | 15.0% | 15.0% |
| Small Business* | 9.0% | 9.0% |
*tax rate on the first $500,000 of active business income, shared amongst an associated group.
2024 personal tax rates are as follows:
| 2024 Tax Brackets | 2024 Rate |
| $55,867 or less | 15% |
| over $55,867 up to $111,733 | 20.5% |
| over $111,733 up to $173,205 | 26% |
| over $173,205 up to $246,752 | 29% |
| Over $246,752 | 33% |
Capital Gains Tax Changes
Capital gains taxation in Canada is set to undergo significant changes with Budget 2024. Among the key amendments is an increase in the Lifetime Capital Gains Exemption Rate and the capital gains inclusion rate, impacting how much of these gains are subject to taxation.
These changes, among others, are poised to reshape the tax landscape, prompting businesses and individuals alike to reassess their financial strategies.
Increase to Lifetime Capital Gains Exemption
In Canada, the Lifetime Capital Gains Exemption (LCGE) offers a special exemption for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property.
The budget proposes to increase the LCGE on eligible capital gains from $1,016,836 to $1,250,000 for dispositions that occur after June 24, 2024.
This amount will be indexed for inflation in 2026.
Capital Gains Inclusion Rate
The following changes have been proposed to capital gains inclusion rates:
- Increase in Inclusion Rate for Corporations and Trusts: The government plans to raise the portion of capital gains that are subject to tax from one half to two thirds for corporations and trusts. This change applies to capital gains earned on or after June 25, 2024.
- Threshold for Individuals: Individuals will be taxed on two-thirds of their capital gains that exceed $250,000 in a year (an increase from one half). Individuals will retain the 50% inclusion rate on the first $250,000 of capital gains per year (or for the period from June 25 to December 31, 2024). This threshold considers various factors like current year losses, losses from previous years, and certain exemptions.
- For example, if an individual sold a property and had a capital gain of $1,000,000, the first $250,000 of the gain would have an inclusion rate of 50% (i.e. $125,000 would be added to taxable income), while the remaining $750,000 would have an inclusion rate of 66.67% ($500,000 would also be added to taxable income).
- Employee Stock Option Deduction: Employees who benefit from stock options will see adjustments to their taxable benefit deduction. While the inclusion rate increases, they will still have deductions, but with some changes in the allowable amounts.
- Utilization of Capital Losses: Past capital losses can still be used to offset current year capital gains. The value of these losses will be adjusted to match the new inclusion rate, ensuring they can still fully offset equivalent gains.
- Full Availability of Threshold: The $250,000 threshold for individuals will be fully applicable in 2024 without any proration. It will only apply to net capital gains realized during a specific period.
The chart below lists the tax rates for individuals on capital gains earned after June 25, 2024. This chart assumes the top marginal tax rates apply:
| First $250,000 | Over $250,000 | |
| Federal | 16.50% | 22.00% |
| Alberta | 24.00% | 32.00% |
| British Columbia | 26.75% | 35.67% |
| Manitoba | 25.20% | 33.60% |
| New Brunswick | 26.25% | 35.00% |
| Newfoundland and Labrador | 27.40% | 36.53% |
| Northwest Territories | 23.53% | 31.37% |
| Nova Scotia | 27.00% | 36.00% |
| Nunavut | 22.25% | 29.67% |
| Ontario | 26.77% | 35.69% |
| Quebec | 26.65% | 35.53% |
| Saskatchewan | 23.75% | 31.67% |
| Yukon | 24.00% | 32.00% |
Additional changes will be made to tax laws to accommodate the new inclusion rate. Details of these amendments will be provided later.
Canadian Entrepreneur’s Incentive
Budget 2024 proposes to introduce the Canadian Entrepreneurs’ Incentive, which aims to support eligible individuals selling qualifying shares. This incentive would reduce the tax rate on these capital gains in half (to 25%), for up to $2 million in gains per person over their lifetime.
Starting January 1, 2025, the $2 million limit would gradually increase by $200,000 each year until it reaches $2 million by January 1, 2034.
Under the proposed two-thirds capital gains inclusion rate in Budget 2024, this incentive would mean only one-third of the gains from qualifying sales would be taxed. It applies alongside any other capital gains exemption available.
However, the criteria to be eligible for this treatment is more difficult to meet than the lifetime capital gain exemption (i.e. the shareholder must have been a founding shareholder with a “significant interest”).
Employee Ownership Trust Capital Gains Exemption
As first announced in the Fall Economic Statement 2023, shares sold by an individual to an employee ownership trust in a qualifying business transfer between January 1, 2024, and December 31, 2026, could qualify for a $10 million capital gains exemption.
There are conditions to meet beyond just the transfer being in a qualifying business and the lifetime capital gains exemption. For instance, the individual (or their spouse or common-law partner) must have actively worked in the business for at least 24 months. If there are multiple sellers eligible for the exemption, they have to share the $10 million limit.
If certain “disqualifying events” happen within 36 months after the transfer, the exemption could be reversed retroactively.
Capital gains exempted through this measure would be subject to an inclusion rate of 30 per cent for the purposes of the alternative minimum tax, similar to the treatment for gains eligible for the lifetime capital gains exemption.
Other Tax Measures Impacting Business and Farming
Canada Carbon Rebate for Small Businesses
Budget 2024 introduces the Canada Carbon Rebate for Small Businesses, a new initiative designed to refund a portion of fuel charge proceeds to impacted provinces (Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, PEI, and Newfoundland and Labrador).
Eligible Canadian-Controlled Private Corporations (CCPC) will receive an automatic, refundable tax credit, which will be calculated on a “per-employee basis” multiplied by a payment rate specified by the Minister of Finance for the province for the corresponding fuel charge year.
Rates and additional details will be released in the future.
Accelerated Capital Cost Allowance
Budget 2024 proposes to implement a temporary accelerated capital cost allowance on eligible new purpose-built rental projects.
This allowance, set at a rate of 10 percent (up from 4 percent), applies to eligible projects that meet certain criteria, including the requirement of having at least 4 private apartment units, or 10 private rooms or suites, and at least 90% of the residential units must be long-term rental units.
This CCA may apply on housing projects which began after April 15, 2024, and before January 1, 2031.
These projects must be ready for residents to occupy before January 1, 2036.
Temporary Immediate Expensing for Productivity-Enhancing Assets
To encourage investment in assets that drive innovation and boost productivity, Budget 2024 proposes to allow businesses to apply a 100% first-year deduction for specific Capital Cost Allowance classes:
- patents (Class 44)
- data network infrastructure equipment (Class 46)
- computers, and other data processing equipment (Class 50)
These investments must be acquired and utilized on or after Budget Day but before January 1, 2027.
Scientific Research and Experimental Development
Consultation on the current Scientific Research and Experimental Development (SR&ED) tax incentives was held between January 31, 2024, and April 15, 2024.
The budget proposed a second consultation period, with details to be released on the Department of Finance Canada website in the future.
Deductions for Tradespeople’s Travel Expenses
Budget 2024 announces the government’s intention to allow tradespeople to deduct unlimited travel expenses when they work at a job site more than 120 kilometers from home, retroactive to the 2022 tax year.
Travel deductions for tradespeople (Labour Mobility Deduction for Tradespeople) are currently limited to the lesser of $4,000 and their eligible relocation expenses.
Interest Relief for Farmers
Budget 2024 proposes to provide $64 million in 2024-25 to Agriculture and Agri-Food Canada to support a $250,000 interest-free limit on Advance Payments Program loans for the 2024 program year.
The government will continue to review the Advance Payments Program to improve program delivery and reduce the administrative burden for producers.
Possible Changes to Livestock Tax Deferral
The Livestock Tax Deferral is designed to help ease the financial strain on farmers amid natural disasters like droughts or floods by allowing farmers to defer income from livestock sales.
The federal government is committing to collaborate with industry stakeholders like the Canadian Cattle Association to streamline processes such as expediting support during times of crisis.
Supporting Interoperability on the Farm
To facilitate farmers’ access to tools and technologies crucial for farm management, the government is considering amendments to the Copyright Act to support interoperability between devices and equipment.
Budget 2024 announced the government will begin consultations in June and call upon the provinces to amend their contract laws to support interoperability.
Further details will be announced as they become available.
Interest Deductions and Purpose-Build Rental Housing
Briefly, Budget 2024 proposes a change of the existing excessive interest and financing expenses limitation (EIFEL) rules, to allow for elections to exempt out of these rules for certain projects involving rental housing built in Canada.
This change applies to taxation years starting on or after October 1, 2023.
Clean Electricity Investment Tax Credit
The Clean Electricity Investment Tax Credit was first introduced in Budget 2023 offering a 15% credit on eligible property expenditures by eligible Canadian corporations.
Budget 2024 announced eligibility requirements pertaining to Bill C-59’s proposed labor requirements are met (including wages and apprenticeship training opportunities); otherwise, the credit decreases to 5%.
Repayment obligations apply if the property’s eligible use ceases, is exported, or disposed of within a specific timeframe.
The credit applies to new eligible properties available for use between April 16, 2024, and 2035, with exceptions for projects commencing construction before March 28, 2023.
Clean Technology Manufacturing Investment Tax Credit
Budget 2024 proposes an update to the previously announced investment tax credit to include production of qualifying minerals (i.e. graphite, cobalt, nickel, copper, etc.) which occur at polymetallic projects.
Certain criteria were introduced to clarify the eligibility.
Legislation for the amendments to both the Clean Electricity and Clean Technology Investment Tax Credits are planned to be introduced in the fall of 2024.
Electric Vehicle Supply Chain Investment Tax Credit
To supplement the Clean Manufacturing Investment Tax Credit (ITC), Budget 2024 proposes an introduction of an ITC of 10% of the cost of buildings, in Canada, used in specific electric vehicle supply chain segments: electric vehicle assembly; (ii) electric vehicle battery production; and (iii) cathode active material production.
The ITC is set to be phased out over 10 years, and with the ITC rate being 0% after 2034.
Mineral Exploration Tax Credit for Flow-Through Share Investors Extended
Proposed extension of the Mineral Exploration Tax Credit (METC) for one more year, so the credit would be eligible for flow-through share (FTS) agreements entered into before April 1, 2025.
The METC is a 15% credit designed to help exploration companies raise equity funds in addition to the regular tax deduction associated with FTS investments.
Vacant Land Tax
The government promises to launch a consultation period later in 2024, to determine how to best address the concern that some landowners are holding residentially zoned vacant land as an investment.
Corporate Investor Restrictions
The Budget also outlines the government’s intention to restrict the purchase of existing single-family homes by large corporate investors. Consultations are set to begin in the coming months.
The government expects to provide an update on both the Vacant Land Tax and Corporate Investor Restrictions in the Fall 2024 Economic Statement.
Sales and Excise Tax Measures
Tobacco Excise Duty
Budget 2024 reveals the Government’s plan to raise the tobacco excise duty rate by $4 per carton of 200 cigarettes, resulting in a total of $5.49 including the automatic inflationary adjustment of $1.49 per carton that took effect April 1, 2024. Additionally, corresponding increases in excise duty rates for other tobacco products are proposed.
This increase is effective as of April 17, 2024.
GST/HST Treatment of Student Residential Units
The government is proposing an amendment of the Excise Tax Act to allow universities, public colleges and school authorities to access the Enhanced GST Rental Rebate (i.e. 100%) for short-term student residences.
This will apply to student residences that were being built on or after September 14, 2023 (the previous announcement) and before 2031, and which are completed before 2036.
GST/HST Treatment On Face Masks And Face Shields
Budget 2024 proposes to repeal the temporary zero rating of certain face masks or respirators, as well as certain face shields.
Effective for supplies of the above items made on or after May 1, 2024.
Fuel, Alcohol, Cannabis, and Tobacco Sales Tax Framework
Budget 2024 proposes amendments to the First Nations Goods and Services Tax Act to grant Indigenous governments greater flexibility in exercising tax jurisdiction on their lands.
These amendments would allow Indigenous governments to implement a value-added sales tax, governed by their own laws, on fuel, alcohol, cannabis, tobacco, and vaping (FACT) products within their reserves or settlement lands. The FACT sales tax would be comparable to the First Nations Goods and Service Tax, applying at the same five percent GST rate, but would only include fuel, alcohol, cannabis, tobacco, and vaping products.
Additional engagement and review of tax administration agreements would be required prior to implementation by interested Indigenous governments.
Personal Tax Measures
Alternative Minimum Tax
Budget 2024 proposes changes to the Alternative Minimum Tax (AMT).
Revisions include changes to the donation tax credit – increased to 80 per cent of the credit claimed for regular income tax purposes instead of the previously proposed 50 per cent.
Other amendments include fully allowing deductions for Guaranteed Income Supplement (GIS), social assistance and workers’ compensation payments as well as making provisions for claiming other tax credits if AMT applies to you.
Home Buyers’ Plan
Budget 2024 includes a proposal to raise the Registered Retirement Savings Plan (RRSP) withdrawal limit from $35,000 to $60,000 to buy or build a qualifying home under the Home Buyers’ Plan (HBP). This increase would also be applicable to withdrawals made for the benefit of a specified disabled individual.
This change would take effect from April 16, 2024, onwards and extend to subsequent calendar years.
The proposal also includes a temporary deferral of the 15-year repayment period by three years for participants initiating their first withdrawal between January 1, 2022, and December 31, 2025. The repayment period would then commence in the fifth year following the initial withdrawal year.
Canada Child Benefit
In Budget 2024, the Government proposes to amend the Income Tax Act to extend eligibility for the Canada Child Benefit (CCB) for six months following the death of a child if the individual would have otherwise qualified for the CCB.
The CCB entitlement during the extended period would be determined by his/her age in each month as if the child were still alive and based on other family factors (e.g., marital status).
This measure would be effective for deaths that occur as of January 2025.
Canada Disability Benefit
For taxpayers who are eligible to receive the disability tax credit, and who are between the ages of 18 and 64, may be eligible to receive payments up to a maximum of $2,400 per year.
The Canada Disability Benefit is expected to come into force in June 2024 with payments to eligible individuals starting in July 2025.
The federal government is asking provinces to exempt benefits received from the Canada Disability Benefit from counting as income so as not to negatively impact income tested provincial support.
Disability Supports Deduction
Budget 2024 proposes an expansion of eligible medical expenses eligible for the Disability Supports Deduction, such as the costs associated with service animals, computer input devices including assistive keyboards, or ergonomic work chairs.
Individuals may choose to claim costs as a medical expense, or the disability supports deduction.
Volunteer Firefighters’ and Search and Rescue Volunteers’ Tax Credits
The tax credit available to eligible volunteer firefighters and search and rescue volunteers is proposed to increase from $3,000 to $6,000 maximum.
This increase would apply to 2024 and future years.
Caps to Non-Sufficient Fund (NSF) Fees
The government announced its intent to cap the NSF fees charged by banks to $10 per instance, as well as establishing requirements surrounding the number of NSF fees charged per transaction, providing advance notice of an NSF fee, and permitting grace periods to deposit additional funds before the NSF fee is applied.
The government will release draft NSF fees regulations in the coming months
Qualified Investments for Registered Plans
Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plans (RDSPs), First Home Savings Accounts (FHSAs), and Deferred Profit-Sharing Plans (DPSPs) are restricted to investing in qualified investments. Qualified investments can include a wide array of assets, such as mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates.
The Budget invites stakeholders to submit comments regarding how qualified investment rules could be revised to simplify and remove inconsistencies of the current rules.
The consultation period is open until July 15, 2024.
Indigenous Child and Family Services Settlement
The Budget includes a proposed amendment to the Income Tax Act to ensure that income from trusts established under the First Nations Child and Family Services, Jordan’s Principle, and Trout Class Settlement Agreement, are exempted from tax.
This would apply to the 2024 tax year, and onwards.
Canada Revenue Agency (CRA) Measures
Non-Compliance with Information Requests
Proposed amendments to the provisions in the ITA which allow CRA to gather information, to improve the collection of tax revenues and enhance audit effectiveness. These include:
- A new CRA notice, a “notice of non-compliance” which may include a monetary penalty*
- Allow CRA to require that any information be provided under oath or affirmation (including both oral and written information).
- Changes to the assessment limitation period.
*A notice of non-compliance may include a penalty set at $50 per day that the notice remains unresolved, up to a maximum of $25,000. However, this penalty wouldn’t apply if the notice of non-compliance is eventually rescinded by the CRA or a court.
Tax Debt Avoidance
Budget 2024 proposes new measures to strengthen the existing rules in the Income Tax Act that prevent certain tax debt avoidance planning techniques, such as when there is a transfer of property from a tax debtor to another party.
The new measures would come into effect under the following circumstances:
- There is a transfer of property from a tax debtor to another party.
- Simultaneously or as part of a connected series of transactions, there is a separate transfer of property from a party unrelated to the tax debtor to a recipient who is not dealing at arm’s length with the tax debtor.
- One of the intentions behind the transaction or series is to evade joint and several liability.
When these criteria are met, the property transferred by the tax debtor is treated as if it were given directly to the non-arm’s length recipient for the tax debt avoidance rule. This ensures that the rule applies when property is transferred from the tax debtor to one party and, simultaneously the property is received by a non-arm’s length party.
The Income Tax Act includes a penalty for the existing tax debt avoidance rule and Budget 2024 proposes the penalty be extended to include these proposed new measures.
These measures are set to apply to transactions, or series of transactions, which occur after April 15, 2024.
Mandatory Disclosure Rules Penalty Removal
Budget 2024 announces a plan to eliminate a penalty provision in the Income Tax Act that imposes fines up to $25,000 and imprisonment up to a year for failing to file a return or comply with specific rules.
The mandatory disclosure rules already have their own penalties for these situations, rendering the general penalty provision unnecessary.
The government intends to exclude the failure to file an information return regarding reportable or notifiable transactions from this penalty provision. This change would be retroactively effective from June 22, 2023.
Debt Forgiveness Restriction and Other Limitations for Bankrupt Entities
The CRA has recognized that some taxpayers have attempted to use the bankruptcy status of an insolvent corporation to take advantage of the exception in the existing debt forgiveness rules while also avoiding the loss restriction rule applicable to bankrupt corporations.
This strategy aims to safeguard the losses and tax benefits of the insolvent corporation, which would otherwise be forfeited upon debt forgiveness, for acquisition and use by a profitable corporation to evade corporate income tax.
Proposed legislative change eliminate the exception to the debt forgiveness rules for bankrupt corporations, along with the loss restriction rule applicable to them. This would bring bankrupt corporations under the same general rules that apply to other corporations when their commercial debts are forgiven.
These proposals would apply to corporate bankruptcies filed on or after April 16, 2024.
Synthetic Equity Arrangements
The Income Tax Act allows corporations to deduct dividends received on shares of Canadian-resident corporations with certain limitations. One restriction is an anti-avoidance rule aimed at synthetic equity arrangements, which transfer the “economic exposure” of a share to another party. Typically, taxpayers must compensate this party for dividends paid on the share, resulting in additional tax deductions unless the anti-avoidance rule applies.
Budget 2024 proposes removing exceptions related to tax-indifferent investors, simplifying the rule and disallowing the dividend received deduction for shares where the equity hold is considered to be “synthetic” (i.e. the shareholder doesn’t in fact hold the risk and reward associated with the share).
This change would apply to dividends received on or after January 1, 2025.
Other Tax Measures and Announcements of Interest
Crypto-Asset Reporting Framework
Budget 2024 proposes the implementation of the Crypto-Asset Reporting Framework (CARF), which was developed by the Organization for Economic Cooperation and Development and would apply to crypto-asset provider who are either resident in Canada or carry on business in Canada.
The primary focus of these rules is to address transparency issues, and would apply to 2026 years and onwards.
Withholding for Non-Resident Service Providers
Current income tax rules mandate a 15% withholding on payments made to non-residents for services in Canada, acting as a prepayment for potential Canadian taxes owed.
However, many non-resident service providers don’t ultimately owe Canadian tax due to treaty exemptions or the nature of their services.
Budget 2024 proposes giving the CRA authority to waive withholding requirements for non-residents exempt from Canadian tax under tax treaties or for services like international shipping.
This change, effective upon royal assent, aims to streamline withholding processes while reducing risks of non-compliance.
International Tax Reform
The Base Erosion and Profit Shifting (BEPS) initiative, previously announced in 2021, includes two pillars to reform the international tax system.
The Budget re-commits to Pillar One of the initiative, which applies to multinational enterprises (MNEs) with annual revenue above 20 billion Euros, and profit margins above 10%.
Canada will also move ahead with the implementation of the Digital Services Tax (DST), which will come into effect 2024.
Pillar Two entails establishing a global minimum tax regime to guarantee that large multinational corporations face a minimum effective tax rate of 15% on their profits worldwide.
The federal government is moving forward with introducing legislation to implement this in Canada.
Halal Mortgages
The government announced it would consider new measures with the aim of expanding access to various financing options for home buyers, such as halal mortgages.
Consultations have begun and the government expects to provide an update in the 2024 Fall Economic Statement.
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