Federal Budget 2024: 10 Key Takeaways

Budget 2024 proposes to increase the capital gains inclusion rate from 1/2 to 2/3 for capital gains realized on or after June 25, 2024. For individuals only, the first $250,000 of capital gains realized in a tax year will still be eligible for the 1/2 capital gains inclusion rate. This lower inclusion rate on the first $250,000 of capital gains realized will not be available for corporations or trusts.  

The higher capital gain inclusion rate will also apply on qualifying employee stock option benefits that are entitled to the stock option deduction. The lower inclusion rate of 1/2 will still be available on the first $250,000 of eligible stock option benefits realized (this $250,000 threshold, however, must be shared with capital gains incurred by the individual).  

For tax years that straddle the effective date of June 25, 2024, two different inclusion rates would apply. As such, capital gains and losses will need to be separately identified for these tax years. The annual $250,000 threshold for individuals would still be fully available in 2024 such that  there is no requirement to prorate the threshold, and would apply only in respect of net capital gains realized on or after June 25, 2024.

Budget 2024 proposes to introduce the Canadian Entrepreneurs’ Inventive (CEI). The CEI would reduce the tax rate on capital gains realized by an eligible individual on the sale of qualifying shares of a business. The inclusion rate for capital gains realized on an eligible sale would be reduced to 1/3 from the current 1/2 inclusion rate.

The CEI would be available to founding investors disposing of qualifying shares in certain sectors, who own at least ten per cent of the shares in their business, and where their principal employment has been with the company for at least five years.

The 1/3 inclusion rate would apply on a lifetime maximum of $2 million of eligible capital gains. The limit will start at $200,000 in 2025 and increase by $200,000 annually, until it reaches $2 million in 2034. 

Budget 2024 puts forward a plan to revise the tax treatment of charitable donations when calculating AMT to allow an individual to claim 80 per cent of the charitable donation tax credit, increased from 50 per cent. This will reduce the potential application of AMT when an individual makes a charitable donation.

Budget 2024 also proposes to fully exempt Employee Ownership Trusts from the AMT. Employee Ownership Trust rules were previously announced by the government in the 2023 Budget. 

Budget 2024 proposes to increase the capital cost allowance (CCA) rate from four per cent to ten per cent for new eligible purpose-built rental projects that begin construction on or after April 16, 2024 and before January 1, 2031, and are available for use before January 1, 2036. Eligible property would generally include new purpose-built rental housing that is a residential complex with at least four private apartment units or ten private rooms or suites, in which at least 90 per cent of residential units are held for long-term rental.

Budget 2024 provides further details regarding the proposed $10 million capital gain exemption on the sale of eligible businesses to an Employee Ownership Trust (EOT), which was previously announced by the government in its 2023 Budget. The $10 million exemption would be available to an individual (other than a trust) on the sale of eligible shares to an EOT where specific conditions are met. 

Non-resident service providers in Canada are currently subject to a 15 per cent withholding tax obligation that acts as a pre-payment of any Canadian tax that the non-resident may ultimately owe. Budget 2024 proposes to provide the Canada Revenue Agency (CRA) with legislative authority to waive the withholding requirement over a specified period for payments to a non-resident service provider if:

• The non-resident would not ultimately be subject to Canadian income tax in respect of the payments because of a tax treaty between their country of residence and Canada; or 
• The income from providing the services is exempt income from international shipping or from operating an aircraft in international traffic.