2024 Federal Budget Tax Measures

In the wake of Canada’s 2024 budget, significant tax changes are poised to reshape the financial landscape for many Canadians. From capital gains inclusion rates to the tax treatment of charitable donations, these measures promise both challenges and opportunities. As we delve into the intricacies of the budget, let’s explore how these adjustments will impact individuals, entrepreneurs, and the broader economy.

Capital Gains Inclusion Rate - The budget proposes to increase the capital gains inclusion rate from one-half (50%) to two-thirds (66.66%) for corporations and trusts. For individual taxpayers, the change applies to the portion of capital gains realized in the year that exceeds $250,000. Specifically, for the first $250,000 in capital gains, the existing rate of 50% remains unchanged. Beyond that threshold, every dollar of capital gains would be taxed at the proposed two-thirds rate.

Lifetime Capital Gains Exemption (LCGE) - This exemption which is indexed to inflation, allows individuals to realize capital gains on the sale of qualified small business corporation shares or qualified farm/fishing property without paying tax on the gains up to this threshold. As of 2024, the LCGE stands at $1,016,836. Budget 2024 proposes to increase the LCGE to apply to up to $1,250,000 of eligible capital gains. This change would be effective for dispositions occurring on or after June 25, 2024.

Canadian Entrepreneurs' Incentive - The 2024 Canada federal budget introduces the Canadian Entrepreneurs’ Incentive, aimed at fostering entrepreneurship. Under this initiative, the tax rate on capital gains from the sale of qualifying shares (founding shares) by eligible individuals will be reduced. Specifically, the inclusion rate will be lowered to 33.3% for a lifetime maximum of $2,000,000 in eligible capital gains. This is a significant improvement compared to the current limits, where the inclusion rate stands at 50% for capital gains.

Volunteer Firefighters and Search and Rescue Volunteers Tax Credits - The existing tax credit for both volunteer firefighters and search and rescue volunteers, which previously stood at $3,000, will double to $6,000 for the tax year 2024 and subsequent years. This means that volunteer firefighters can now save up to $900 annually on their taxes.

Tax Treatment of Charitable Donations - In response to the sector’s advocacy and to encourage philanthropy, Budget 2024 amends the proposed cap on the donations tax credit to 80%, up from 50% as announced in Budget 2023. However, the capital gains inclusion rate for donations of stock, mutual funds, and other securities remains unchanged at 0%. Additionally, the tax treatment of charitable donations when calculating the alternative minimum tax (AMT) will be revised, allowing individuals to claim 80% (instead of the previously proposed 50%) of the Charitable Donation Tax Credit.

Increased Home Buyer’s Plan (HBP) Limit - The Home Buyers’ Plan (HBP) is a Canadian government program that empowers first-time homebuyers by allowing them to withdraw up to $35,000 from their Registered Retirement Savings Plans (RRSPs). This withdrawal can be used as a down payment on a qualifying home, without incurring tax penalties. The HBP aims to make homeownership more accessible, especially in regions with high housing costs. Participants must repay the withdrawn amount within 15 years to maintain the tax benefits. The 2024 Federal Budget proposes to increase the HBP limit to $60,000, providing additional support for aspiring homeowners. This measure would apply to the 2024 and subsequent calendar years in respect of withdrawals made after Budget Day. In addition, the 2024 Budget proposes to temporarily differ the repayment period by an additional three years. In other words, if an individual withdrew funds from their RRSP under the HBP between January 1, 2022, and December 31, 2025, your repayment grace period will be extended by three years. Participants now have up to 18 years (instead of the usual 15 years) to repay the amount withdrawn from their RRSP for the HBP.

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