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Apr 2024 Edition

▶️ The Low-Down on Budget 2024 Announcements

Firstly, note that Budget 2024 announcements made on April 16th are not law yet. They still need to be approved. Please do not take any panic steps until then.

• Capital gains inclusion rate: The budget will increase the capital gains inclusion rate to two thirds (from one half) for corporations and trusts, and to two thirds (from one half) on the portion of capital gains realized in the year that exceed $250,000 for individuals, for capital gains realized on or after June 25, 2024.

• Lifetime Capital Gains Exemption: The budget will increase the Lifetime Capital Gains Exemption (LCGE) to $1.25 million of eligible capital gains (from $1,016,836 in 2024) realized on the disposition of qualified small business corporation shares and qualified farm or fishing property, effective for dispositions that occur on or after June 25, 2024. Indexation of the LCGE will resume in 2026.

• Canadian entrepreneurs’ incentive: A new Canadian entrepreneurs’ incentive will reduce the tax rate on capital gains on the disposition of qualifying shares by an eligible individual to one half the prevailing inclusion rate (i.e., one third under the two-thirds capital gains inclusion rate proposed in the budget), on up to $2 million in capital gains per individual over their lifetime. This measure will apply to dispositions on or after January 1, 2025.

• Alternative Minimum Tax (AMT): Changes to the AMT will allow individuals to claim 80 per cent (instead of the previously proposed 50 per cent) of the Charitable Donation Tax Credit when calculating AMT.

• Home Buyers’ Plan: The budget proposes to:

  • increase the RRSP withdrawal limit to $60,000 (from $35,000), effective for2024 and subsequent years for withdrawals made after April 16, 2024.

  • temporarily defer the start of the 15-year repayment period by an additionalthree years for participants making a first withdrawal between January 1, 2022, and December 31, 2025.

• Canada Carbon Rebate for small businesses: The budget proposes to provide a Canada Carbon Rebate for eligible small and medium sized-businesses. The refundable tax credit would be available to a Canadian-controlled private corporation that files a tax return for its 2023 taxation year by July 15, 2024.

• Non-compliance with information requests: The budget proposes several amendments to the information gathering provisions in the Income Tax Act. These amendments will affect:

  • a proposed new notice of non-compliance issued by the CRA

  • questioning under oath

  • compliance orders

  • stopping the reassessment limitation clock

  • certain tax statutes administered by the CRA.

These amendments will come into effect on royal assent.

▶️ How much more in Capital Gains Tax?

One of the questions we’re being asked is - “Should I sell my cottage / second property before June 25th and realize the capital gain before June 25th?”

Firstly, as noted above, the Budget is not law yet. So let’s not jump into panic mode. Even when the Budget gets passed, the example below puts into perspective the additional personal tax you may pay on capital gains above $250,000 per person after June 25, 2024.

Note that $250,000 limit is per individual, per year. If you own your asset jointly with your spouse, or another partner, each person gets the $250,000 limit.

As such, we’re showing 3 examples here — someone realizing a capital gain as an individual, a couple who jointly own a property realizing the same gain, and a corporation realizing the same capital gain.

Here are the key findings from this example:

• Firstly, we’ve assumed a pretty significant capital gain $559,000. If your capital gain is below the $250,000 limit per year (as an individual), you have nothing to worry about.

• The negative tax impact is higher for one individual realizing large capital gains after June 25th v/s couples or multiple partners.

• Seeing the example above, if you were not planning to sell your property in the near term, would you want to jump to a panic mode now and sell, just to save a few thousand dollars? Do you think after interest rates start coming down, your property will regain more in value than the tax you may save before June 25th?

• If you do own property within a corporation, note that there is no 50% inclusion on the first $250,000. The 66.67% income inclusion kicks on from the very first dollar of capital gain after June 25th. This results in the biggest increase in the tax payable, will require its own specific discussion and planning.

If you need a customized tax consultation on this with our Tax Team, please reach out.

🤓 REMINDER OF THE MONTH

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