On April 16, 2024, the federal government released its budget, with a focus on home affordability and reducing the cost of living to “strengthen the middle class.” *
From a housing perspective, the government has suggested its intention to convert public lands into housing, form a new housing infrastructure fund and increase the mortgage amortization for first-time homebuyers for new builds to 30 years (as of August 1, 2024). The budget also proposes increasing the Home Buyers’ Plan (HBP) withdrawal amount from $35,000 to $60,000 after April 16, 2024. The HBP allows first-time home buyers a tax-free withdrawal from their Registered Retirement Savings Plan (RRSP), subject to repayment and other conditions. The budget proposes to temporarily defer the start of the 15-year HBP repayment period by an additional three years for those making a first withdrawal between January 1, 2022, and December 31, 2025.
There were no changes to the personal tax rates or the corporate income tax rates. However, some notable changes may impact tax and wealth planning for which investors should be aware, including:
- Capital gains inclusion rate — The budget proposes to increase the capital gains inclusion rate from 50 percent to 66.67 percent for corporations and trusts for capital gains realized on or after June 25, 2024. For individuals, the increased inclusion rate will be applied to the portion of capital gains realized that exceeds a threshold of $250,000 per year.
- Lifetime capital gains exemption (LCGE) — The budget proposes to increase the LCGE from the current amount of $1,016,836 to $1,250,000 to apply to dispositions that occur on or after June 25, 2024, and this would be indexed to inflation beginning in 2026.
- Canadian entrepreneur’s incentive — This new incentive proposes to reduce the tax rate on capital gains on the disposition of qualifying shares by an eligible individual by reducing the capital gains inclusion rate to one-half of the prevailing rate on up to $2 million of capital gains per individual over their lifetime, subject to various conditions. The limit will be phased in by increments of $200,000 per year, beginning January 1, 2025, and reaching the $2 million value by the year 2034. Once fully phased in, at current inclusion rates, this would essentially allow two-thirds of $2M in capital gains to be sheltered by this tax incentive (as only one-half of the current 66.67 percent would be subject to tax).
- Alternative minimum tax (AMT) — The budget further amends the AMT rules. The AMT is a “parallel tax” calculation that prevents high-income earners and some trusts from paying little or no tax as a result of certain tax deductions and credits. Notably, the rules surrounding donations have been amended to now allow individuals to claim 80 percent of the charitable donation tax credit when calculating the AMT, instead of the previously proposed 50 percent. Employee ownership trusts would be fully exempt from the AMT.
- Employee ownership trusts (EOT) — An EOT is a trust that holds shares of qualifying businesses for the benefit of employees to support succession planning and promote employee ownership of small businesses. The budget further clarified the conditions required to meet the $10 million capital gains exemption on the sale of shares to an EOT, as proposed in the 2023 Fall Economic Statement. Most notably, the exemption can be shared among multiple individuals and the exemption applies to qualifying dispositions of shares that occur between January 1, 2024, and December 31, 2026.
*Note: At the time of writing, these budget proposals have not been enacted into law. However, it is expected that these changes will achieve the support of the NDP and pass as intended.
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