Summary of the 2024 federal budget

On April 16, 2024, Finance Minister Chrystia Freeland presented the 2024 federal budget to deliver “A Fair Chance for Every Generation”. Among other things, this budget aims to enable the construction of more housing, faster, help make life more affordable and grow the economy to help every generation prosper.

The government is making tax changes on several fronts, and we’d like to share a few of them with you:

For companies and trusts

Capital gain inclusion rate

The capital gains inclusion rate (gains realized on or after June 25, 2024) would be increased to 66.67% (2/3 of the gain). Previously, the rate was 50%; thus, there would be two rates applicable in 2024, depending on when the gain is realized.

Reminder: A capital gain is realized when there is a sale, or when the Revenue Agency considers that the sale was made at a price greater than the total of the adjusted cost base of the capital asset and the expenses incurred or made to sell the capital asset. Common examples of capital assets include stocks, bonds, mutual fund trust units, land, buildings and equipment used in a business or rental activity.

Capital cost allowance (CCA)

The capital cost allowance (CCA) system is used to determine the deductions a company can claim each year for income tax purposes on the capital cost of its depreciable assets. Depreciable property is generally divided into CCA classes, each with its own rate in Schedule II of the Income Tax Regulations.

The CCA rate will be increased to 10% for buildings built specifically for rental purposes (category #1). This measure applies to projects for which construction begins on or after April 16, 2024 and before January 1, 2031, or for which loans are put into service before January 1, 2036.

The CCA rate would be increased to 100% (immediate expensing in the first year) for assets in categories #44 (patents), #46 (servers and network infrastructure) and #50 (hardware: computers), for acquisitions on or after April 16, 2024 (ready to be put into service before 2027).

For private customers

Capital gains

The capital gains inclusion rate (for gains realized on or after June 25, 2024) would be increased on gains in excess of $250,000: the first $250,000 at 50% (unchanged) and the excess capital at 66.67%.

Reminder: A capital gain is realized when there is a sale, or when the Revenue Agency considers that the sale was made at a price greater than the total of the adjusted cost base of the capital property and the expenses incurred or made to sell the capital property. Common examples of capital assets include cottages, stocks, bonds, mutual fund trust units, land and buildings.

Lifetime Capital Gains Exemption (LCGE)

The income tax system offers individuals a lifetime tax exemption on capital gains realized on the disposition of qualified small business shares and qualified farm or fishing property. The lifetime limit available for the LCGE is increased to $1,250,000, for capital gains realized on or after June 25, 2024. The amount will then be indexed annually starting in 2026.

Incentive for Canadian entrepreneurs

The government is introducing aQualified Small Business Share (QSBS) disposition incentive for Canadian entrepreneurs, with a reduced capital gains inclusion rate of 33.33%. The lifetime limit would be $2,000,000, phased in at a rate of $200,000/year starting in 2024. This incentive applies to capital gains realized on or after January 1, 2025, and is in addition to the CGC.

Home Buyers’ Plan (HBP)

The Home Buyers’ Plan (HBP) helps eligible buyers save for a down payment by allowing them to withdraw an amount from their Registered Retirement Savings Plan (RRSP) for the purchase or construction of a first home, or a home for a specified disabled person, without having to pay tax on the funds withdrawn.

The HBP withdrawal limit would be increased from $35,000 to $60,000 to facilitate home ownership. The 15-year repayment period would begin in the 5th year following the year in which the first withdrawal was made (instead of the 2nd year).