2024 Federal Budget – Major Income Tax Changes Announced
Increased Capital Gains Inclusion Rate
- Objective: Increase the taxable portion of capital gains to two-thirds from one-half for:
- Individuals realizing capital gains exceeding $250,000 annually.
- Trusts or corporations realizing any amount of capital gains in a year.
- Effective Date: Gains realized on or after June 25, 2024.
- Transitional Rules: Apply to fiscal years beginning before and ending after June 25, 2024.
Increased Lifetime Capital Gains Exemption (LCGE)
- Objective: Raise the LCGE to exempt $1,250,000 of eligible capital gains.
- Effective Date: Dispositions occurring on or after June 25, 2024.
- Indexation: Annually adjusted for inflation starting in 2026.
Canadian Entrepreneurs’ Incentive (CEI)
- Objective: Introduce the CEI to reduce taxable capital gains on eligible shares for founding investors.
- Phasing-in: Starts in 2025, with initial limits and gradual increases up to $2,000,000 by 2034.
- Qualification: Applies to shares of small Canadian-controlled private corporations in certain sectors.
Alternative Minimum Tax (AMT)
- Objective: Amend AMT rules to enhance deductions and exemptions.
- Changes: Effective January 1, 2024, adjustments include:
- Increased deductions for charitable donations, social assistance, and logging tax credits.
- Full exemption for Employee Ownership Trusts (EOTs).
Employee Ownership Trusts (EOTs)
- Objective: Expand EOT rules to exempt capital gains on shares transferred under specific conditions.
- Conditions: Applies to shares of non-professional corporations held by the transferor for certain periods.
- Exemption Limit: Up to $10,000,000 of capital gains, subject to conditions and timelines.
Accelerated CCA on Eligible Rental Housing
- Objective: Provide accelerated CCA of 10% for new purpose-built rental projects.
- Eligibility: Projects starting construction from April 16, 2024, and available for use by January 1, 2036.
- Property Criteria: Residential complexes with at least four private units, primarily for long-term rental.
Elimination of Exemption from Debt Forgiveness Rules for Bankrupt Corporations
- Objective: Subject bankrupt corporations to debt forgiveness rules, aligning with other corporate entities.
- Effective Date: Applicable to bankruptcy proceedings from Budget Day.
EIFEL Exemption for Arm’s Length Financing used to Build/Acquire Eligible Rental Housing
- Objective: Extend EIFEL exemption to interest on arm’s length financing for rental housing.
- Eligibility: Applies to projects meeting criteria for new purpose-built rental housing.
Audit Compliance Measures
- Objective: Strengthen CRA’s information gathering powers and compliance measures.
- Proposals: Introduce notices of non-compliance, questioning under oath, and penalties for non-compliance.
- Penalties: Up to $25,000 for outstanding notices, plus extensions of reassessment periods.
