2024 Canadian Federal Budget

Capital Gains Measures

Capital Gains Inclusion Rates. Budget 2024 proposes to increase the capital gains inclusion rate from one-half to two-thirds for (i) all capital gains realized on or after June 25, 2024, by corporations and trusts and (ii) the portion of capital gains realized on or after June 25, 2024, by individuals in excess of an annual $250,000 threshold. The proposed $250,000 threshold for individuals will be calculated net of the individual’s current year capital losses, capital loss carryforwards and carrybacks and capital gains in respect of which the lifetime capital gains exemption, the proposed exemption for dispositions to employee ownership trusts or the proposed Canadian Entrepreneurs’ Incentive is claimed. Consequential to the change in the capital gains inclusion rate, Budget 2024 also proposes to decrease the stock option deduction that is available under the Income Tax Act (Canada) (the Tax Act) upon the exercise of employee stock options to reflect the new capital gains inclusion rate. Individuals would similarly be entitled to a deduction of one-half of the taxable benefit realized upon the exercise of an employee stock option up to a combined limit of $250,000 for both employee stock options and capital gains.

Lifetime Capital Gains Exemption. Budget 2024 proposes to increase the lifetime capital gains exemption available for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property to $1.25 million (from $1,016,836), with indexation to inflation resuming in 2026. This measure is proposed to apply to dispositions that occur on or after June 25, 2024.

Canadian Entrepreneurs' Incentive. Budget 2024 proposes to introduce a new Canadian Entrepreneurs’ Incentive, which provides a capital gains inclusion rate of one-half of the prevailing inclusion rate on capital gains realized by an "eligible individual" on the disposition of "qualifying shares" (which are proposed to be shares with similar attributes to qualified small business corporation shares, with additional conditions).  The Canadian Entrepreneurs' Incentive will be subject to a lifetime limit of up to $2 million in capital gains per eligible individual and the $2 million limit will be phased in over 10 years by increments of $200,000 per year reaching $2 million by January 1, 2034. Applying the proposed two-thirds capital gains inclusion rate would result in an inclusion rate of one-third for qualifying dispositions.  The Canadian Entrepreneurs' Incentive will apply in addition to the lifetime capital gains exemption.  This measure is proposed to apply to dispositions that occur on or after January 1, 2025. Learn more >

Other Personal Income Tax Measures

Alternative Minimum Tax. Budget 2024 proposes further amendments to the alternative minimum tax (AMT) rules following proposals first announced as part of Budget 2023. The AMT is a parallel income tax calculation that allows fewer deductions, exemptions and tax credits than under the regular income tax calculation and is designed to require that certain individual taxpayers pay a minimum amount of tax each year. Budget 2023 had proposed to expand the application of AMT to high-income individuals by broadening the income base on which the AMT is calculated, increasing the AMT rate, and narrowing the credits available to taxpayers when calculating AMT. Budget 2024 proposes further amendments to the AMT rules announced in Budget 2023 to (i) address some (but not all) of the concerns raised following the initial draft legislation, including the recognition of charitable tax credits, (ii) introduce various other technical amendments, and (iii) introduce new exemptions to AMT for Indigenous settlement and community trusts. If enacted, the proposed AMT rules are to be effective as of January 1, 2024. Learn more >

Employee Ownership Trusts. Budget 2024 provides additional details on the $10 million exemption from taxation on capital gains realized on the sale of a business to an employee ownership trust (EOT). 

• The exemption would generally be available on the disposition of shares of a corporation by an individual, a personal trust of which the individual is a beneficiary or a partnership in which the individual is a member of shares of a corporation pursuant to a qualifying business transfer (as defined in the proposed EOT rules) provided certain conditions are met. The exemption would not be available on the disposition of shares of a professional corporation or if the trust acquiring the shares is already an EOT or a similar trust. Multiple individuals may claim the exemption on a transfer but would be required to agree on how to allocate the $10 million amount. For AMT purposes exempted capital gains would be subject to a 30% inclusion rate.

• The exemption is denied upon the occurrence of a disqualifying event, which occurs if the EOT loses its status or if less than 50% of the fair market value of the shares of the business is attributable to assets used principally in an active business at the beginning of two consecutive taxation years. When a disqualifying event has occurred, the EOT would be deemed to realize a capital gain equal to the amount of the exemption and would be solely liable for tax realized on the deemed capital gain unless the disqualifying event occurs within 36 months of the transfer. When the disqualifying event occurs within 36 months of the transfer, the exemption would be retroactively denied for the individual who claimed the exemption; however the EOT would be jointly and severally, or solidarily liable with the individual for any tax payable. This measure is proposed to apply as of January 1, 2024. Learn more >

Volunteer Firefighters and Search and Rescue Volunteers Tax Credits. Budget 2024 proposes to increase the base on which the tax credit is calculated to $6,000 (from $3,000) for individuals who perform at least 200 hours of combined volunteer service during the year as a volunteer firefighter or a search and rescue volunteer. This measure is proposed to apply to the 2024 and subsequent tax years.

Mineral Exploration Tax Credit. The Tax Act allows an individual to claim a tax credit equal to 15% of the specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. The tax credit is legislated to expire on March 31, 2024. Budget 2024 proposes to extend the eligibility to the tax credit by one year. This measure will apply to expenditures renounced under eligible flow-through share agreements entered on or before March 31, 2025.

Canada Child Benefit. Budget 2024 proposes to extend eligibility for the Canada child benefit for six months after a child’s death for individuals that would have otherwise been eligible for the Canada child benefit for that particular child, effective for deaths that occur after 2024. Budget 2024 also proposes that the extended period would also apply to the child disability benefit.  

Disability Supports Deduction. Budget 2024 proposes to extend the list of expenses recognized for the disability supports deduction, effective for the 2024 and subsequent taxation years. Budget 2024 also proposes that expenses for service animals as defined under the medical expense tax credit rules will be recognized under the disability supports deduction. An individual would be able to choose whether to claim the expense under the medical expense tax credit or the disability supports deduction.

Home Buyers’ Plan. Budget 2024 proposes to:

• increase the withdrawal limit under the Home Buyers' Plan, including withdrawals made for the benefit of a disabled individual, to $60,000 (from $35,000) for the 2024 and subsequent calendar years for withdrawals made after Budget Day; and
• temporarily extend the repayment grace period by three years to five years under the Home Buyers’ Plan, so that eligible home buyers who withdraw from their registered retirement savings plans between January 1, 2022, and December 31, 2025, will have up to five years before they need to start repayments to their registered retirement savings plans.

Indigenous Child and Family Services Settlement. Budget 2024 proposes to amend the Tax Act to exclude the income of the trusts established under the First Nations Child and Family Services, Jordan’s Principle, and Trout Class Settlement Agreement from taxation. This would also ensure that payments received by class members as beneficiaries of the trusts would not be included when computing income for federal income tax purposes. This measure is proposed to apply to the 2024 and subsequent taxation years.

Business Income Tax Proposals

Clean Economy Measures: Budget 2024 includes the following measures relating to clean economy investment tax credits.

• Clean Electricity Investment Tax Credit: Budget 2024 provides further detail concerning the refundable Clean Electricity Investment Tax Credit (the CEITC) that was announced in Budget 2023.  The CEITC is a refundable tax credit of up to 15% of the capital cost of certain eligible property, which can include (i) certain equipment used in "low-emitting" electricity generation systems using energy from solar, wind, water, geothermal, waste biomass, nuclear or natural gas (provided there is a carbon capture and storage component to limit emissions), (ii) certain stationary electricity storage equipment, and (iii) certain equipment and structures used for transmission of electricity between provinces and territories. Of note, the CEITC is proposed to be available to both taxable and tax-exempt corporations, including Crown corporations, corporations owned by Indigenous communities, and pension investment corporations, though provincial Crown corporations would need to publicly commit to achieving net-zero targets by 2035 to qualify. As with certain other clean economy investment tax credits, to qualify for the 15% CEITC, the proposed labour requirements for prevailing wages and apprenticeship hours would need to be met. A 5% credit rate would be available if the labour requirements are not met. The CEITC is proposed to be available for eligible equipment acquired on or after Budget Day and that is not part of a project that began construction before March 28, 2023, with additional conditions required for provincial and territorial Crown corporations. The CEITC is to be phased out by 2035.
• EV Supply Chain Investment Tax Credit: Budget 2024 announces a new investment tax credit to support the electric vehicle supply chain in Canada. This new investment tax credit, referred to as the EV Supply Chain Investment Tax Credit, is proposed as a credit of up to 10% of the cost of buildings used in electric vehicle assembly, electric vehicle battery production, and cathode active material production. This tax credit is proposed to be available for property acquired on or after January 1, 2024, and is to be phased out by 2035. Budget 2024 noted that the design and implementation details of the EV Supply Chain Investment Tax Credit will be provided in the 2024 Fall Economic Statement. 
• Polymetallic Extraction and Processing: Budget 2024 proposes amendments to the previously proposed Clean Technology Manufacturing Investment Tax Credit in order to clarify the availability of the investment tax credit for projects that involve the extraction and processing of multiple metals (some of which are qualifying and some of which are not). This measure is proposed to be effective on January 1, 2024, being the same date as the Clean Technology Manufacturing Investment Tax Credit is to be effective. 

Accelerated Capital Cost Allowance (CCA) – Housing.  Budget 2024 proposes an accelerated CCA deduction of 10% (increased from 4%) for certain eligible purpose-built rental projects that begin construction on or after Budget Day and prior to January 1, 2031, and are available for use before January 1, 2036. The accelerated CCA would be for new purpose-built rental housing that is a residential complex (i) with at least four private apartment units or 10 private rooms; and (ii) in which at least 90% of the units are held for long-term rental. Conversions of existing non-residential real estate into rental housing meeting the same conditions would also be entitled to the accelerated CCA.

Accelerated Capital Cost Allowance – Productivity-Enhancing Assets. Budget 2024 proposes to allow immediate expensing for new additions of property acquired on or after Budget Day and that become available for use before January 1, 2027, and are included in Class 44 (patents or the rights to use patented information for a limited or unlimited period), Class 46 (data network infrastructure equipment and related systems software), and Class  50 (general-purpose electronic data-processing equipment and systems software). The accelerated CCA would be prorated for short taxation years and would not be available in the following taxation year. 

Carbon Rebate for Small Businesses. Budget 2024 introduces a new Canada Carbon Rebate for Small Businesses in the form of an automatic refundable tax credit for Canadian-controlled private corporations that had fewer than 500 employees in the year. The Canada Carbon Rebate for Small Business for the 2019-20 to 2023-24 fuel charge years would be available to a Canadian-controlled private corporation that files a tax return for its 2023 taxation year by July 15, 2024 (with similar timelines for subsequent fuel charge years). The tax credit amount would be (i) determined for each applicable province in which the eligible corporation had employees in the calendar year in which the fuel charge year begins and (ii) equal to the number of persons employed by the eligible corporation in the province in that calendar year multiplied by a payment rate specified by the Minister of Finance (Canada) for the province for the corresponding fuel charge year. Budget 2024 provides that the Canada Revenue Agency (the CRA) would automatically determine and pay the tax credit to eligible corporations.

Interest Deductibility Limits for Purpose-Built Rental Housing. The excessive interest and financing expenses limitation (EIFEL) rules (enacted in response to the OECD Base Erosion and Profit Shifting Project and announced in Budget 2021) are designed to limit the deduction of certain interest and financing expenses. The EIFEL rules as currently proposed have an exemption for interest and financing expenses for certain public-private partnership infrastructure projects. Budget 2024 proposes to expand the exemption from the EIFEL rules to include certain interest and financing expenses incurred to build or acquire eligible purpose-built rental housing in Canada. This exemption from the EIFEL rules would generally apply to the same types of purpose-built rental housing projects that benefit from the accelerated CCA deduction described above under "Accelerated Capital Cost Allowance (CCA) – Housing." This measure is proposed to be effective for taxation years beginning on or after October 1, 2023, and to be available only for expenses incurred before January 1, 2036, for arm's length financing.

Denial of Mutual Fund Corporation Status. Budget 2024 proposes to deem a corporation not to qualify as a mutual fund corporation where certain tests relating to concentration of value and control are satisfied. A corporation would be deemed not to be a mutual fund corporation after a particular time if, at that time, (i) the aggregate fair market value of its shares held by a person or partnership, or any combination of persons or partnerships that do not deal with each other at arm's length (in either case referred to as "specified persons"), exceeds 10% of the fair market value of all of the issued and outstanding shares of the corporation and (ii) the corporation is controlled by or for the benefit of one or more specified persons. The deeming rule would not apply if the corporation was incorporated not more than two years before the particular time and the aggregate fair market value of the shares of the corporation owned by specified persons at the particular time does not exceed $5 million. This measure is proposed to apply to taxation years that begin after 2024.

Synthetic Equity Arrangements. The Tax Act generally allows a corporation to deduct the amount of any dividends received on a share of a corporation resident in Canada, subject to certain limitations. One of these limitations is an anti-avoidance rule that denies the dividend received deduction in connection with "synthetic equity arrangements." Synthetic equity arrangements include arrangements in which a person receives a dividend on a share, but all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share are provided to another person. The anti-avoidance rule incorporates certain exceptions, including where a taxpayer can establish that no tax-indifferent investor (or group of affiliates tax-indifferent investors) has all or substantially all of the risk of loss and opportunity for gain or profit in respect of the particular share.  An associated exception is also available for an agreement traded on a recognized derivatives exchange. Budget 2024 proposes to remove the tax-indifferent investor exception (including the exchange traded exception) to the anti-avoidance rule for dividends received on or after January 1, 2025. 

Manipulation of Bankrupt Status. Budget 2024 proposes to remove the bankruptcy exception to the debt forgiveness rules for corporations. Currently, the debt forgiveness rules in the Tax Act do not apply to a bankrupt debtor. Under the proposals introduced in Budget 2024, bankrupt corporations would now have a "forgiven amount" for a commercial debt obligation and be required to reduce their loss carryforwards and other tax attributes in accordance with the debt forgiveness rules contained in the Tax Act. Insolvent corporations would still be able to claim the deduction for forgiven debt of insolvent Canadian resident corporations contained in subsection 61.3(1) of the Tax Act.  It should be noted that Budget 2024 will retain the bankruptcy exception for individuals.  This measure is proposed to apply to bankruptcy proceedings commenced on or after Budget Day.

International Tax Measures

Crypto-Asset Reporting Framework. The Common Reporting Standard (CRS) is an international information exchange regime aimed at combatting tax evasion. It requires Canadian financial institutions (and certain other entities) to report to the CRA information on financial accounts held by non-residents in Canada, which the CRA then shares with foreign tax authorities. Under CRS, the CRA also obtains information about financial accounts of Canadians held outside of Canada. The CRS rules do not currently provide for information sharing on crypto-assets, which Budget 2024 describes as including stablecoins, derivatives issued as crypto-assets and certain non-fungible tokens. Budget 2024 proposes two significant measures relevant to crypto-assets:

• First, Canada will implement the OECD’s Crypto-Asset Reporting Framework (CARF) by requiring "crypto-asset service providers," including crypto exchanges, crypto-asset brokers and dealers and operators of crypto-asset automated teller machines, to report to the CRA personal information about each of their customers and information about each customer’s crypto-assets and related transactions.
• Second, the CRS rules would be expanded to apply to specified electronic money products such as central bank digital currencies and digital representations of fiat currencies, which will not be subject to the CARF reporting rules.

In addition, Budget 2024 proposes minor changes to the CRS reporting requirements for labour-sponsored venture capital corporations and a new rule to strengthen the anti-avoidance provisions of the CRS. The CARF and the amended CRS would apply to the 2026 and subsequent calendar years, with the first reporting and exchange of information under the CARF and amended CRS to take place in 2027 for the 2026 calendar year.

Withholding for Non-Resident Service Providers. A person who makes a payment to a non-resident for services rendered in Canada is currently required to withhold 15% of the payment and remit that amount to the CRA. Budget 2024 proposes to provide the CRA with legislative authority to waive the 15% withholding requirement over a specified period for payments made to a non-resident of Canada for services rendered in Canada, if (i) the non-resident service provider would not be subject to Canadian income tax for the payments because of a tax treaty between Canada and its country of residence, or (ii) the income derived from the services is exempt income from international shipping or from operating an aircraft in international traffic. This proposal would allow the CRA to waive the withholding requirement on multiple transactions with a single waiver. This measure is proposed to come into force on royal assent of the enacting legislation.

Pillar One, Pillar Two and Digital Services Tax. Budget 2024 reaffirmed Canada’s commitment to Pillar One and Canada's intention to introduce global minimum tax legislation in Parliament to implement Pillar Two. However, in view of delays in implementing the Pillar One multilateral treaty, Budget 2024 reiterates the government’s plan to enact a digital services tax, which is currently before Parliament in Bill C-59. The digital services tax would begin to apply for calendar year 2024, with that first year covering taxable revenues earned since January 1, 2022. 

Administrative Measures

Charities and Qualified Donees. Budget 2024 included measures intended to improve certain rules in the Tax Act for registered charities and other qualified donees.

• Currently, a foreign charity may register as a qualified donee for a 24-month period where the foreign charity received a gift from His Majesty in right of Canada and is pursuing certain activities in the national interest of Canada.  Budget 2024 proposes to extend the eligibility of a foreign charity to be considered a qualified donee from 24 months to 36 months.  In addition, the foreign charity would also be required to submit an annual information return to the CRA that would be made publicly available. The extension will apply to foreign charities registered after Budget Day and the reporting requirements would apply to taxation years beginning after Budget Day.
• Budget 2024 proposes to allow the CRA to communicate certain official notices digitally to charities and to simplify the issuance of donation receipts by removing certain of the required information. Budget 2024 also proposes to expressly permit charities to issue official donation receipts electronically provided they contain all required information, are issued in a secure and non-editable format and an electronic copy of the receipt is maintained. These measures are proposed to come into force on royal assent of the enacting legislation.

Non-compliance With Information Requests. Budget 2024 proposes measures to enhance the efficiency and effectiveness of information gathering in the context of tax audits and tax debt collection. One of the key measures proposed is introducing a "notice of non-compliance" that could be sent by CRA to taxpayers who do not comply with requests for information. The direct effect of the notice would be to extend the normal reassessment period. The "stop the clock rules" in the Tax Act pertaining to the normal reassessment period are proposed to be broadened accordingly. Penalties could also be levied up to a maximum of $25,000 for non-compliant taxpayers under notice. Budget 2024 also introduces penalties up to $50,000 in cases where a compliance order to provide information or documents is obtained against a taxpayer before the Federal Court. Finally, as part of the measures aiming to increase CRA’s audit powers, Budget 2024 also proposes to amend the Tax Act to allow the CRA to request that information or documents be provided under oath or affirmation. These measures are proposed to come into force on royal assent of the enacting legislation. 

Avoidance of Tax Debts. Budget 2024 proposes to strengthen the tax debt anti-avoidance rule in the Tax Act, which allows the Minister of National Revenue to assess and collect tax from a transferee to whom property has been transferred from a non-arm’s length tax debtor for no or inadequate consideration. This rule is proposed to now apply in situations where property has been transferred from a tax debtor to a person and, as part of the same transaction or series, property has been received by a non-arm’s length person, if one of the purposes of the transaction or series is to avoid joint and several, or solidary, liability. This measure is proposed to apply to transactions or series of transactions that occur on or after Budget Day. Learn more >

Other Measures

GST Rental Rebate for Universities, Public Colleges and School Authorities. Budget 2024 proposes to expand the temporary Enhanced (100%) GST Rental  to allow universities, colleges or school authorities to obtain the Enhanced (100%) GST Rental Rebate for new qualifying purpose-built rental housing units, including those that are part of a residential complex that contains at least four private apartment units or at least 10 private rooms or suites and in which at least 90% of the residential units meet the conditions for the existing GST Rental Rebate. To ensure that universities, colleges and school authorities can claim the temporary Enhanced (100%) GST Rental Rebate for rental accommodations, Budget 2024 proposes to allow them to apply the normal rules that apply to other builders and provide for the application of the rebate for student-housing units that are built for such a purpose. Moreover, the rebate conditions would be relaxed for any new student residence acquired or constructed by a university, college or school authority provided it is primarily for the purpose of providing a place of residence for their students.

Face Masks and Face Shields. Budget 2024 will remove the temporary GST/HST zero-rating for face masks and face shields in effect during the COVID-19 pandemic.