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2024 Canadian Federal Budget Overview

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In the realm of personal finance, staying informed about updates to tax regulations and financial incentives can greatly impact your financial decisions. Let's delve into the key measures proposed in Budget 2024 that may influence individuals and businesses.

Measures for Individuals

Capital Gains and Income Tax

The capital gains inclusion rate is set to undergo adjustments, potentially affecting how much individuals and entities pay in taxes on their investment gains. Budget 2024 proposes increasing the inclusion rate from one-half to two-thirds for certain entities, impacting those with capital gains exceeding $250,000. This change necessitates careful planning to optimize tax liabilities, possibly through spreading gains over multiple years.

Planning Opportunity

It's crucial to highlight that the sale of a principal residence remains exempt from capital gains taxes. Additionally, in scenarios where the higher capital gains inclusion rate may be applicable, there are potential tax planning strategies to consider. One strategy involves spreading the capital gain over multiple years to ensure it stays within the $250,000 annual threshold, optimizing tax liabilities and financial outcomes.

Alternative Minimum Tax (AMT)

Changes to the AMT aim to streamline tax calculations, offering relief in certain areas such as charitable donation tax credits and deductions for specific benefits like Guaranteed Income Supplement and social assistance. Some of the changes include:

• Increasing the charitable donation tax credit to 80% (up from 50%).

• Allowing full deductions for Guaranteed Income Supplements, social assistance, and workers’ compensation payments.

• Fully exempting Employee Ownership Trusts (EOTs) from the AMT.

• Allowing certain previously disallowed credits (e.g., federal political contribution tax credit, investment tax credits) to be carried forward under the AMT.

• Providing AMT exemption for trusts benefiting Indigenous Groups.

Planning Opportunity

The increased charitable donation tax credit under AMT is advantageous for Canadians making substantial charitable contributions. However, the inclusion rate for in-kind donations remains at 30% for AMT purposes, unchanged from previous announcements. Careful consideration of donation methods is essential to maximize tax benefits under the updated AMT rules.

Home Buyers Plan

In the 2024 Federal Budget, the HBP limit is proposed to increase significantly from $35,000 to $60,000 for withdrawals made after Budget Day. Additionally, to assist recent and upcoming first-time home buyers, the budget proposes extending the repayment grace period by three years for Canadians who withdrew from the HBP between January 1, 2022, and December 31, 2025. These measures aim to provide more flexibility and support for individuals seeking to enter the housing market.

Planning Opportunity

With the FHSA already assisting many Canadians and the increased HBP limits, more Canadians can now access funds for their first home. The extended repayment grace period of up to five years allows first-time home buyers to focus on mortgage payments and financial progress. These measures aim to support Canadians in achieving homeownership and financial stability.

Employee Ownership Trusts (EOTs)

Employee Ownership Trusts (EOTs) were introduced in Budget 2023 to facilitate employee ownership transitions. Under Budget 2024, the first $10 million in capital gains from selling a business to an EOT is exempt from taxation, subject to specific conditions. Beneficiaries must meet residency requirements and ensure at least 50% of assets are used in the active business. Multiple sellers can claim the exemption, totaling $10 million, with agreement on allocation. Disqualifying events within 36 months may affect exemption eligibility. Capital gains exempted are subject to a 30% inclusion rate for AMT purposes. These rules apply to share dispositions between January 1, 2024, and December 31, 2026, supporting business transitions to employee ownership.

Canada Child Benefit

The Canada Child Benefit (CCB) is a monthly income-tested benefit that supports eligible families with children under 18. Currently, CCB eligibility ends the month following a child's death.

Budget 2024 proposes extending CCB eligibility for a deceased child from one month to six months after their passing. For instance, if a child dies in July, the caregiver can receive the CCB for that child from August through January under the proposed change. This amendment aims to provide extended financial support during a difficult period for families coping with loss.

Disability Supports Deduction

The Disability Supports Deduction allows individuals with impairments in physical or mental functions to deduct specific expenses that help them earn business or employment income or attend school.

Budget 2024 proposes to expand the eligible expenses under the Disability Supports Deduction, starting in 2024, particularly for individuals with severe and prolonged impairments in physical functions, impairments in physical or mental functions, and vision impairments. It also suggests allowing expenses for service animals to be deductible. Taxpayers will have the choice to claim these expenses either as a medical expense tax credit or under the Disability Supports Deduction.

Measures for Businesses

Lifetime Capital Gains Exemption

The Lifetime Capital Gains Exemption (LCGE) provides individuals with an exemption from taxes on capital gains earned from the sale of qualified small business corporation (QSBC) shares and qualified farm or fishing property (QFFP).

In the 2024 federal budget, there is a proposal to raise the LCGE by 25% to $1.25 million (from $1,016,836) for dispositions occurring on or after June 25, 2024. This new threshold will be indexed in 2026 and in subsequent years.

Canadian Entrepreneurs’ Incentive

The 2024 federal budget introduces the Canadian Entrepreneurs’ Incentive (CEI), which aims to reduce the capital gains inclusion rate by one-half on the disposition of qualifying shares by an eligible individual starting January 1, 2025. The lifetime limit for this incentive will be phased in incrementally by $200,000 per year from January 1, 2025, to January 1, 2034, ultimately reaching a maximum limit of $2 million.

For individuals subject to the two-thirds capital gains inclusion rate proposed in the 2024 budget, this incentive would decrease the inclusion rate to one-third upon disposition of qualifying shares. This measure is in addition to any available lifetime capital gains exemption, enabling entrepreneurs to benefit from an exemption of up to $3.25 million once the incentive is fully implemented.

Accelerated Capital Cost Allowance

Taxpayers are eligible to claim a deduction under the Capital Cost Allowance (CCA) system for capital costs incurred in acquiring certain depreciable property. The 2024 federal budget proposes to raise the CCA rate permitted for new eligible purpose-built rental housing from 4% to 10%.

To qualify for this increase, construction of the property must commence after April 15, 2024, and before January 1, 2031. Furthermore, the property must be ready for use before January 1, 2036.

Canada Carbon Rebate for Small Businesses

The budget proposes the introduction of a new Canada Carbon Rebate for Small Businesses, aimed at providing eligible corporations with an automatic refundable tax credit based on the number of employees in each applicable province.

Under this proposal, eligible corporations would be able to claim the tax credit for the 2023 taxation year if they file their 2023 tax return by July 15, 2024. This rebate initiative is designed to incentivize small businesses to reduce their carbon footprint and contribute to environmental sustainability efforts. Eligible corporations should ensure timely filing to take advantage of this tax credit opportunity.

Non-compliance with information requests

The budget includes a proposal to amend the Income Tax Act, granting the Canada Revenue Agency (CRA) the authority to issue a "notice of non-compliance" in cases where an individual has failed to comply with the CRA's request for information or assistance.

Upon enactment of this amendment, issuance of the notice of non-compliance would extend the normal reassessment period until the notice is resolved. Additionally, a penalty of $50 per day would be imposed for each day the notice remains outstanding, up to a maximum penalty of $25,000. This measure aims to enforce compliance with CRA requests and ensure timely responses to information requirements under the Income Tax Act.

Conclusion

To conclude, staying updated on tax changes and financial strategies outlined in Budget 2024 is crucial for individuals, families and business to make informed decisions about their finances. Whether it's optimizing capital gains taxes, taking advantage of enhanced benefits like the expanded Home Buyers Plan, or leveraging new exemptions such as those for Employee Ownership Trusts, understanding these updates can significantly impact financial outcomes. By proactively exploring planning opportunities and considering the implications of these changes, individuals can navigate the evolving landscape of personal finance with greater confidence and effectiveness. Remember, seeking professional advice tailored to your specific circumstances is always advisable to maximize benefits and minimize risks in light of these new measures.

- Kondwelani Kalinda, Associate Investment Advisor

Kondwelani Kalinda is an Associate Investment Advisor at Endeavour Wealth Management with iA Private Wealth, an award-winning office as recognized by the Carson Group. Endeavour Wealth Management provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Kondwelani Kalinda who is an Associate Investment Advisor for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained here in may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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