On December 16, 2024, the federal government provided the country with the 2024 Fall Economic Statement (the “Statement”). The announcements focused on reducing everyday costs incurred by Canadians, while following-up on previously-announced tax measures.
Crowe MacKay’s tax experts provide tax highlights of key areas within the Statement that may affect you or your business. If you require assistance, connect with us in Alberta, British Columbia, Northwest Territories or the Yukon.
Currently, payments received under the Canada Disability Benefit would be included in a recipient’s income for tax purposes and an offsetting deduction would be provided to ensure that the payments are effectively non-taxable. However, the amounts received could affect certain income-tested benefits delivered through the federal and provincial tax systems, such as the Canada Child Benefit.
The Statement proposes to exempt amounts received under the Canada Disability Benefit from income under the Income Tax Act. This measure would apply to the 2025 and subsequent taxation years.
The Statement proposes to amend the Income Tax Act to expand eligibility for the Canada Carbon Rebate rural supplement (20 per cent top-up to base rebate amount) to individuals who, within a Central Metropolitan Area (CMA), reside in a census rural area (less than 1,000 individuals) or a small population centre (less than 30,000 individuals) as designated by Statistics Canada. This measure also proposes to base eligibility for the supplement on these geographical designations as per the most recent Census published before the taxation year.
The proposed changes would apply as of the 2024 taxation year, meaning that the first payments under the proposed rules would occur in April 2025.
Individuals who live in prescribed northern areas of Canada for at least six consecutive months beginning or ending in a taxation year may claim the Northern Residents Deduction in computing their taxable income for that year. Residents of the Northern Zone are eligible for the full amount of the deduction, while residents of the Intermediate Zone are eligible for one-half of the deduction.
The islands of Haida Gwaii are currently included in the Intermediate Zone. The Statement proposes to re-classify the islands of Haida Gwaii from the Intermediate Zone to the Northern Zone, which would allow residents to claim up to the maximum value of the deduction. This change would apply to the 2025 and subsequent taxation years.
Under the Income Tax Act, individuals are allowed to defer taxation on capital gains realized on the qualifying disposition of Eligible Small Business Corporation (ESBC) shares to the extent that proceeds from the disposition are used to acquire replacement ESBC shares within the year of disposition, or up to 120 days following that year. To qualify as an ESBC share, a share must be a common share issued by an ESBC to the individual and the total carrying value of the assets of the ESBC and related corporations must not exceed $50 million immediately before and immediately after the share was issued.
The Statement proposes to increase the period to acquire replacement shares and to expand what qualifies as an ESBC share. The period to acquire replacement shares would be expanded to encompass the year of disposition and the entire calendar year after the year of disposition. The definition of ESBC share would be revised to include both common and preferred shares and increase the limit to the carrying value of the assets of the ESBC and related corporations to $100 million.
These changes would be effective for qualifying dispositions that occur on or after January 1, 2025.
The Statement proposes several changes to the reporting requirements for NPOs in order to improve transparency in the NPO sector.
Currently, an NPO is required to file an annual information return if:
The Statement proposes to amend the Income Tax Act to require NPOs with total gross revenues over $50,000 to also file the annual NPO information return.
The Statement also proposes to amend the Income Tax Act to require NPOs that do not meet the thresholds for filing the annual NPO information return to file a new, short-form return that contains basic information about the organization, including:
These measures would apply to the 2026 and subsequent taxation years.
The Statement proposes to increase the SR&ED expenditure limit on which the fully refundable enhanced 35 per cent tax credit rate currently available to Canadian-controlled private corporations (CCPC) can be earned from $3 million to $4.5 million. The taxable capital phase-out thresholds for determining the expenditure limit would also be increased from $10 million and $50 million to $15 million and $75 million, respectively.
The Statement also proposes to extend eligibility for the enhanced refundable tax credit to eligible Canadian public corporations. An eligible Canadian public corporation would be a corporation that, throughout the taxation year:
Canadian-resident corporations all or substantially all of the shares of the capital stock of which are owned by one or more eligible Canadian public corporations would also be eligible.
Access to the $4.5 million expenditure limit for any given tax year would be phased out based on a public corporation’s gross revenue. Specifically, the expenditure limit would be reduced on a straight-line basis when the corporation’s average gross revenue over the three preceding years is between $15 million and $75 million.
Credits earned in respect of expenditures above their expenditure limit would be eligible for a 15-per-cent non-refundable credit rate.
CCPCs would also have the option to elect to have their expenditure limit for the enhanced SR&ED credit determined based on the same gross revenue phase-out structure proposed for Canadian public corporations, instead of determining eligibility based on taxable capital.
The proposed new rules to determine eligibility for the enhanced SR&ED credit would apply for taxation years that begin on or after December 16, 2024.
The Statement also proposes to restore the eligibility of capital expenditures for both the deduction against income and investment tax credit components of the SR&ED program. The rules would be generally the same as those that existed prior to 2014, and this change would apply to property acquired on or after December 16, 2024 and, in the case of lease costs, to amounts that first become payable on or after December 16, 2024.
Certain provinces apply a fuel charge with a portion the proceeds returned to eligible small and medium-sized businesses via the Canada Carbon Rebate for Small Businesses.
The Canada Carbon Rebate for Small Businesses will generally be available to CCPCs that had 499 or fewer employees in Canada throughout the calendar year in which the applicable fuel charge year began.
The tax credit amount in respect of an eligible corporation for an applicable fuel charge year is determined for each applicable province in which the corporation had employees in the calendar year in which the fuel charge year begins. The tax credit amount is 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 for the province for the corresponding fuel charge year.
The Statement proposes to modify certain elements of the design of the tax credit for the 2024-25 and later fuel charge years. The 2024-25 fuel charge year corresponds to the 2024 calendar year for the purpose of testing the number of employees.
In respect of an applicable fuel charge year (i.e., 2024-25 and later fuel charge years), the tax credit would be available to a CCPC that files their tax return for the calendar year in which the fuel charge year begins by July 15 of the following calendar year.
It is proposed to extend the tax credit to cooperative corporations and credit unions, starting in the 2024-25 fuel charge year.
An eligible corporation with 1 to 20 employees across Canada would receive a minimum payment(s) corresponding to it having 20 employees. If an eligible corporation qualifies for a minimum payment and has employees located in multiple provinces (including provinces where the fuel charge is not in place), the employees in each province would be increased proportionally for the purposes of calculating the credit so that the total number of employees in all provinces would be deemed to be 20.
Eligible corporations would have their payment amounts reduced on a straight-line basis when the number of employees across Canada is between 300 and 500. The payment amount would be zero once the number of employees across Canada reaches 500.
The Statement announced the final conditions that provincial and territorial governments would need to satisfy to be considered for designation by the federal Minister of Finance as being eligible to claim the Clean Electricity investment tax credit, along with the annual reporting requirements that would apply to such designated provincial and territorial Crown corporations.
The federal Minister of Finance would designate a province or a territory as an eligible jurisdiction if the Minister is satisfied that the provincial or territorial government had:
Once a provincial or territorial government believes it has satisfied the two conditions, it must submit a letter to the federal Minister of Finance requesting designation, noting the date the conditions were satisfied, and including supporting evidence.
If a provincial or territorial government satisfies all the conditions by June 30, 2025, and has subsequently been designated by the federal Minister of Finance, then provincial or territorial Crown corporations investing in that jurisdiction would be able to access the Clean Electricity investment tax credit for clean electricity property that is acquired and becomes available for use on or after April 16, 2024, for projects that did not begin construction before March 28, 2023. Otherwise, the credit would apply to clean electricity property that is acquired and becomes available for use on or after the date when the province or territory is designated by the federal Minister of Finance.
A provincial or territorial Crown corporation that claims the credit would be required to publicly report certain information relating to its activities in its jurisdiction, on an annual basis. A provincial or territorial Crown corporation that does not meet these annual reporting requirements would be liable to repay an amount equal to the lesser of five per cent of the entity’s total Clean Electricity investment tax credit received for all taxation years before the reporting-due date and $10 million. Should a Crown corporation report late, but within 6 months after its reporting-due date, the amount of the repayment would be reduced to one-twelfth of the repayment amount as determined above multiplied by the greater of 1 and the number of complete months from the day on or before which the report was required to be made public to the day on which the report was made public.
The Statement proposes to include the Canada Infrastructure Bank as an eligible entity under the Clean Electricity investment tax credit and to introduce an exception so that any financing provided by the Canada Infrastructure Bank would not reduce the cost of eligible property for the purpose of computing the credit. These measures would apply to eligible property that is acquired and that becomes available for use on or after December 16, 2024.
The Statement provides further details on the refundable electric vehicle (EV) Supply Chain investment tax credit which is equal to 10 per cent of the capital cost of eligible building property used in qualifying EV supply chain segments. The credit would be available only to taxable Canadian corporations that invest directly in eligible property. The credit would not be available for investments made by partnerships or trusts.
The credit would be available for buildings and structures, including their component parts, that are described in paragraph (q) of capital cost allowance Class 1 of Schedule II of the Income Tax Regulations. To be eligible for the credit, all or substantially all of the use of property would have to be in one or more of the three qualifying EV supply chain segments:
To be eligible for the credit, a corporation (either by itself or as part of a related group) would be required to invest at least $100 million in each of the three qualifying EV supply chain segments.
Over a 10-year period from the date of acquiring a particular eligible property, the credit could be repayable in proportion to the fair market value of the particular property if it is converted to an ineligible use, exported from Canada or disposed of. In addition, the credit could be repayable if the corporation ceases to meet the other conditions set out above.
The EV Supply Chain investment tax credit would apply to property that is acquired and becomes available for use on or after January 1, 2024. The credit rate would be reduced to 5 per cent for property that becomes available for use in 2033 or 2034, and would no longer be in effect for property that becomes available for use after 2034.
The Clean Hydrogen investment tax credit is a refundable tax credit that covers between 15 to 40 per cent of the cost of purchasing and installing eligible equipment used in clean hydrogen production. Equipment used to convert clean hydrogen to ammonia may also be eligible for a 15-per-cent tax credit.
The Statement proposes that the Clean Hydrogen investment tax credit be expanded to include methane pyrolysis as an eligible production pathway. This measure would apply in respect of property that is acquired and becomes available for use in an eligible project on or after December 16, 2024.
The Statement proposes to re-instate the Accelerated Investment Incentive and immediate expensing measures for a five-year period, with a four-year phase-out after 2029.
The Accelerated Investment Incentive provides an enhanced first-year deduction for capital property that is subject to the capital cost allowance (CCA) rules, with limited restrictions. Currently, eligible property must be acquired after November 20, 2018, and be available for use before 2028 in order to qualify for the incentive. Such property that would normally be subject to the half-year rule would qualify for an enhanced CCA equal to three times the normal first-year deduction, if the property became available for use before 2024.
The Statement proposes to fully re-instate the Accelerated Investment Incentive for qualifying property acquired on or after January 1, 2025, and that becomes available for use before 2030. It would be phased out starting in 2030 and fully eliminated for property that becomes available for use after 2033.
Eligible property not normally subject to the half-year rule would qualify for an enhanced CCA equal to one-and-a-half times the normal first year allowance if acquired on or after January 1, 2025, and becomes available for use before 2030. For such property that becomes available for use during the 2030-2033 phase-out period, the enhanced allowance would be equal to one-and-a-quarter times the normal first-year allowance.
The Accelerated Investment Incentive also applies to eligible Canadian development expenses and Canadian oil and gas property expenses.
Manufacturing or processing machinery and equipment under CCA Class 53 of Schedule II to the Income Tax Regulations, clean energy generation and energy conservation equipment under Class 43.1 (and Class 43.2 for property acquired before 2025), and zero-emission vehicles under Classes 54, 55 and 56 qualified for an enhanced first-year allowance that provided a 100-per-cent deduction for property that became available for use before 2024. These immediate expensing measures are currently phasing out for property that becomes available for use after 2023 and before 2028.
The Statement proposes to fully re-instate these immediate expensing measures for the above-mentioned qualifying property acquired on or after January 1, 2025, and that becomes available for use before 2030. These immediate expensing measures would be phased out starting in 2030 and fully eliminated for property that becomes available for use after 2033.
The Statement confirms the Government's intention to proceed with several previously announced tax and related measures. Some of these are listed below.
This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.
If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.
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