2024 Federal Budget - What You Need To Know

The Canadian government released the 2024 Federal Budget yesterday, its annual fiscal and economic report.

This year’s Budget targeted housing, affordability, and economic growth. There is a lot in the budget but here are highlights that may affect you:

Measures for Individuals

Good news, there aren't any changes to personal federal income tax rates or income brackets. There is some bad news with respect to Capital Gains tax rates.

If you are thinking of selling a major asset (cottage, shares of a company) with a Capital Gain over $250,000: 

Currently, the capital gains inclusion is 50%, where one-half of any capital gain is taxable, while the remaining 50% is tax free. Budget 2024 proposes to increase the capital gains inclusion rate from 50% to 66.67% for individuals with a capital gain realized in the year that exceed $250,000. This takes effect for capital gains realized on or after June 25, 2024.

Planning point: Consideration of selling personally owned assets before June 24th should be given. In situations where the higher capital gains inclusion rate may apply, there may be tax planning opportunities available to spread the capital gain over multiple years to stay within the $250,000 annual threshold.  

If you are thinking of buying your first home (Home Buyers' Plan): 

Home Buyers’ Plan (HBP) is a program for first-time home buyers in Canada. It allows first time home buyers to borrow funds from their RRSP and use those funds to buy or build a first home, for either themselves or for a family member with a disability. The withdrawn funds will need to be paid back into the RRSP over a 15-year period. 

The 2024 Federal Budget proposes to increase the Home Buyers’ Plan limit from $35,000 to $60,000. In addition, to further help recent and upcoming first-time home buyers, Budget 2024 proposes to allow Canadians who withdraw from their Home Buyers’ Plan between January 1, 2022, and December 31, 2025, to have their repayment grace period extended by three years.

Planning point: With the new First Home Savings Account (FHSA) already helping many Canadians, and now the increased HBP limits, Canadians will have more opportunity to access funds for the purchase of their first home. Also, the temporary relief measures give first-time home buyers up to five years before they need to start repayments, so they can focus on their mortgage payments and getting ahead.

If you are thinking of renovating space in your home to rent out or house a family member:

To unlock new housing supply, Budget 2024 proposes a new Secondary Suite Loan Program to enable homeowners to access up to $40,000 in low-interest loans to add secondary suites to their homes starting in 2025-26. Whether the loan is used to bring in a new tenant or to build a space for family members to live close by, this program will help increase density to make the most of available space in communities across the country.

Measures for Businesses

Good news again as there are no changes to corporate federal income tax rates or small business limits. Bad news here as well with respect investments held by Businesses and Trusts regarding Capital Gains...

Capital Gains Inclusion Rate

Currently, the capital gains inclusion is 50%, where one-half of any capital gain is taxable, while the remaining 50% is tax free. Budget 2024 proposes to increase the capital gains inclusion rate from 50% to 66.67% for corporations and trusts. 

Lifetime Capital Gains Exemption

The Lifetime Capital Gains Exemption (LCGE) allows individuals to be exempt from taxes on capital gains realized on the disposition of qualified small business corporation (QSBC) shares and qualified farm or fishing property (QFFP).

The 2024 Budget proposes to increase the LCGE by 25% to $1.25 million (from $1,016,836) for dispositions on or after June 25, 2024. This amount will continue to be indexed in 2026 and future years.

Canadian Entrepreneurs’ Incentive

The 2024 Budget proposes to introduce the Canadian Entrepreneurs’ Incentive (CEI) to reduce the capital gains inclusion rate by one-half on the disposition of qualifying shares by an eligible individual starting January 1, 2025. The lifetime limit for this incentive would be phased in by increments of $200,000 per year beginning on January 1, 2025, to January 1, 2034, reaching the maximum limit of $2 million.

If the individual is subject to the two-thirds capital gains inclusion rate proposed in the 2024 budget, this incentive would reduce the inclusion rate to one-third on disposition of qualifying shares. This measure would apply in addition to any available lifetime capital gains exemption so entrepreneurs can benefit from an exemption up to $3.25 million after the incentive is fully rolled out.

Please feel free to reach out with any questions about how the 2024 Budget may impact you, your family and your finances.