The Federal budget has our local Grande Prairie investors and business community making noise. While increases to the Lifetime Capital Gain Exemption are welcomed, changes to the Capital Gains Inclusion Rate may hit harder for those looking to make a disposition after Budget Day, June 24, 2024. For Corporations, changes spread across Clean Energy to Affordable Housing and removal of an exception for the intercorporate dividends deduction. Below we highlight some changes to give a few ideas on how the 2024 Federal Budget could impact you. 

Personal Tax Impacts

Lifetime Capital Gains Exemption 

The 2024 Budget introduces an increase to the Lifetime Capital Gains Exemption (LCGE) to $1.25 million of eligible capital gains occurring on or after June 25, 2024. We can expect to see periodic increases to the exemption as it adjusts for inflation. 

For example: 

John invested in 100 shares of John’s Go-John’s Inc. at $10.00 per share. The company expanded and grew while he held his shares for 30 years. John then sells his shares for $10,000.00 per share ($1 million) or a Net Capital Gain of $999,000. Assuming John is eligible for the LCGE, he would pay $0.00 in tax on the sale of his shares. 

Canadian Entrepreneurs’ Incentive

A Canadian Entrepreneurs’ Incentive (CEI) is being introduced with the 2024 Budget. This new program reduces the prevailing Capital Gains Inclusion Rate by one-half for up to a $2 million capital gains lifetime limit on the sale of qualifying shares that are directly owned by eligible individuals. The increase will be gradually phased in by increments of $200,000 per year from January 1, 2025 to January 1, 2034. 

Capital Gains Inclusion Rate 

Individuals making a disposition on or after the June 25 implementation date who do not qualify for the LCGE could face a larger tax bill on the sale. The 2024 Budget increases the net Capital Gains Inclusion Rate (CGIR) from one-half to two-thirds of capital gains that an individual directly or indirectly realizes exceeding $250,000 annually. 

For example: 

John sells the same 100 shares of Go John’s at $10,000.00 per share but does not qualify for the LCGE. On the same Net Capital Gain of $999,000, John would owe income tax on $499, 583 or 66.7% of 749,000 ($999,000 less $250,000). 

Before the June implementation date, taxable income on the same sale would be $374,500 or 50% of 749,000.  

Transfer of Tax Debts 

The 2024 Budget plans to expand a rule that makes someone who receives property responsible for the tax debts of a non-arms length transferor, or the person giving it to them. This would broaden to generally apply whenever property is transferred by someone who owes taxes to another person, and as part of the same deal or series of deals, property is also received by someone who does not deal at arm’s length with the tax debtor.  

Corporate Tax Impacts

Canada Carbon Rebate 

An estimated 600,000 businesses, with 499 or fewer employees can anticipate a new refundable tax credit, the Canada Carbon Rebate, under the 2024 Budget. This applies where Federal backstops apply to urgently return proceeds from the price of pollution from 2019-20 through 2023-24.

Clean Electricity Tax Credit

The Clean Electricity investment tax credit offers businesses a 15% refund on the capital cost of equipment used to generate electricity from solar, wind or water energy and potential capital expenditures for refurbishing existing facilities. Eligible entities for the credit have been released under the 2024 Budget, including:

  • taxable Canadian corporations;
  • provincial and territorial Crown corporations, subject to certain requirements;
  • corporations owned by municipalities; 
  • corporations owned by Indigenous communities; and
  • pension investment corporations

Don’t get this confused with the 30% Clean Technology investment tax credit currently before Parliament in Bill C-59.

Clean Technology Tax Credit

The 2024 Budget includes adjustments to the Clean Technology Manufacturing investment tax credit that provides greater support and clarity to businesses producing qualifying polymetallic activities. 

EV Supply Chain Investment Tax Credit

Businesses making Electric Vehicles (EV) and parts receive a 30% tax credit for new machinery and equipment. The 2025 Federal budget plans to introduce a new 10% tax credit on the cost of buildings used in the EV supply chain in the following three areas:

  • EV Assembly 
  • Making EV batteries
  • Producing cathode active materials (used in batteries)

Purpose-Built Rental Housing

The Canadian housing affordability crisis continues and the 2024 Budget introduces incentives for purpose-built rental housing in Canada, these include:

  • A new specific exemption to the proposed excessive interest and financing expense limitation (EIFEL) rules in Bill C-59 
  • Accelerated CCA of 10% for new purpose-built rental projects 
  • Eligibility for the GST Rental Rebate will be expanded to student housing built specifically for long-term rental accommodation, 

Immediate Expensing of Productivity-Enhancing Assets

The 2024 Budget proposes Immediate expensing for new additions of property following the budget implementation date in the following areas:

  • 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)
  • Class 50 (general-purpose electronic data-processing equipment and systems software)

Mutual Fund Corporations

Proposed amendments to the Tax Act may prevent a corporation from qualifying as a Mutual Fund Corporation (MFC) starting after the 2024 tax year. These changes apply when the MFC is controlled by or for the benefit of a corporate group, including any combination of corporations, individuals, trusts, and partnerships that do not deal with each other at arm’s length. 

Synthetic Equity

The Tax Act has a rule that prevents companies from avoiding taxes through synthetic equity arrangements. The tax-indifferent investor exception would be removed and no longer apply to dividends received on or after January 1, 2025.

Canadian Pension Investment

The government is encouraging pension funds to invest in Canada and is exploring ways to enhance investment opportunities for Canadian pension funds including a review of the 30% rule for domestic investments amendments to the Pension Benefits Standards Act, 1985 to increase transparency.

The 2024 Budget is a substantial document that impacts every individual, family and business differently. Above we’ve highlighted just a few of the changes that may be felt by our neighbours here in Grande Prairie and fellow Canadians across the Country. The team here at McNabb Lucuk LLP recommends speaking with a Chartered Professional Accountant to discuss your specific situation and to evaluate which credits apply to your business, including any special considerations for joint ownership and partnerships.