On April 16, 2014, the Canadian Government released its 2024 Federal Budget entitled "Fairness for every generation". In light of the continued economic uncertainty, the key tenets of the budget were aimed at making homes more affordable for Canadians, lowering the cost of living, and expanding the economy.

Below we summarize some of the more significant tax and wealth planning measures that we believe may impact many individuals, families, or business owners that we regularly interact with.

For complete details of the budget, please visit: Federal Budget 2024

Capital Gains Inclusion Rate

In contrast to media speculation heading into the budget announcement, there were no proposed changes to personal tax rates. However, the budget proposes an increase to the capital gain inclusion rate from 50% to 66.67% for corporations and trusts as well as the portion of capital gains exceeding $250,000 for individuals. The $250,000 threshold would effectively apply to capital gains realized by an individual net of any current or prior year capital losses used to offset current-year capital gains.

This measure will be applicable for capital gains realized on or after June 25, 2024.

For tax years that begin before and end on or after June 25, 2024, would effectively have two different inclusion rates. As a result, transitional rules would be required to separately identify capital gains and losses realized before the effective date (Period 1) and those realized on or after the effective date (Period 2). For example, taxpayers would be subject to the higher inclusion rate in respect of the portion of their net gains arising after June 25, 2024 that exceed the $250,000 threshold, to the extent that these net gains are not offset by a net loss incurred in Period 1 or any other taxation years.

Lifetime capital gains exemption

Individuals are provided with a lifetime tax exemption for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property. The budget proposes to increase the LCGE from the current amount of $1,016,836 to $1.25 million. This increase would apply to dispositions that occur on or after June 25, 2024. The LCGE will continue to be indexed to inflation in 2026.

Canadian Entrepreneurs' Incentive

To encourage entrepreneurship, the government is introducing the Canadian Entrepreneurs’ Incentive. This incentive provides a reduced 33%.3 inclusion rate on capital gains up to specific limits.   This limit would be phased in by increments of $200,000 per year, beginning on January 1, 2025, before ultimately reaching a value of $2 million by January 1, 2034. Therefore, entrepreneurs will have two sources of tax advantaged capital gains when they sell their business, in the form of the LCGE and the Canadian Entrepreneur’s Incentive.

Home buyers' plan (HBP)

The HBP helps eligible home buyers save for a downpayment by allowing them to withdraw from their registered retirement savings plan (RRSP) to purchase or build their first home, or a home for a specified disabled individual, without having to pay tax on the withdrawal.

The 2024 budget proposes to almost double the HBP withdrawal limit from $35,000 to $60,000. Couples purchasing a home jointly can thus access up to $120,000 from their RRSPs tax free to purchase a first home. The increased limit is applicable to withdrawals made after April 16, 2024 (however, be sure to check with your financial institution whether the increase in the withdrawal limit will be implemented prior to this measure receiving royal assent).

Previously, amounts withdrawn under the HBP must be repaid to an RRSP within 15 years, beginning the second year following the year in which the withdrawal was made. The budget also proposes to extend the grace period of making repayments by temporarily deferring the start of the 15-year repayment period by an additional three years for withdrawals made between January 1, 2022, and December 31, 2025. Accordingly, the 15-year repayment period would start the fifth year following the year in which a first withdrawal was made.

Qualified investments for registered plans

Registered plans (i.e. RRSP, TFSA, RESP, FHSA, etc) can only invest in qualified investments; most commonly includes mutual funds, publicly traded stocks, bonds, and guaranteed investment certificates. The qualified investment rules have evolved significantly since its introduction in 1966. With the addition of new assets and new types of registered accounts, the government has acknowledged that the qualified investments rules can be inconsistent or difficult to understand in some cases. As such, the budget invites stakeholders to provide suggestions on how the qualified investment rules could be modernized on a prospective basis to improve the clarity and coherence. Stakeholders are invited to submit comments to QI-consultation-PA@fin.gc.ca by July 15, 2024.