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2024 Federal Budget Highlights

As you know, the federal government released its 2024 budget this week. There is a lot to absorb in this lengthy budget (430 pages to be exact!). And keep in mind the budget itself has to be debated in Parliament. We’d like to highlight four key areas of this budget that we think will be of interest to you.

As a Senior Planner, Wesley is committed to helping his clients meet their financial goals by increasing their financial literacy, and delivering quality financial planning services.
As you know, the federal government released its 2024 budget this week. There is a lot to absorb in this lengthy budget (430 pages to be exact!). And keep in mind the budget itself has to be debated in Parliament.

We’d like to highlight four key areas of this budget that we think will be of interest to you. As with previous years, we are partnering with the Quebec CPA Order to also provide you with a high-level summary of the budget. Their summary is found here.

Economic forecasts

Some economic context might help set the stage.

Data from Statistics Canada suggest growth in the first quarter of 2024 is on track for around 3.5%. Meanwhile, short-term interest rates are expected to decline from an average of 4.8% in 2023 to 4.5% in 2024, and to 3.1% in 2025. CPI inflation is expected to ease to about 2.0% by the end of 2024 and average 2.5% in 2024.

The federal budget takes these forecasts into account in its announced measures, all of which are subject to what is likely to be some heated discussion in Parliament.

Key points for our clients

This budget is full of announcements and proposals. We think the following key points will be of particular interest to our clients.

1) Increasing Capital Gains Taxes

The budget proposes to increase the inclusion rate on capital gains realized above $250,000 annually for individuals, and on all capital gains realized by corporations and trusts from 50% to 66.67%. 

More specifically:

  • The inclusion rate for realized capital gains up to $250,000 annually by individuals will continue to be at 50%
  • The stock option deduction will decrease to 33.33% to align with the new capital gains inclusion rate
    • Individuals would continue to benefit from a deduction of 50% of the taxable benefit up to a combined $250,000 annually for both employee stock options and capital gains. 

The proposed change is scheduled to be effective as of June 25, 2024, though there are transitional rules in place for the current year. For 2024 only, the annual $250,000 threshold for individuals only applies to capital gains incurred on or after June 25, 2024. This deadline is important for anyone considering selling assets in the near term, per below.

The $250,000 threshold will not be prorated in 2024, and the capital gains exemption on the sale of a principal residence will continue. The federal government projects that this change will impact about 40,000 individuals (0.13% of Canadians) and 307,000 corporations (12.6% of corporations) per year. 

So, if you’re considering selling assets in the coming months, here are some situations to think about: 

  • If you are selling a secondary home or rental property and your capital gain is more than $250,000, your tax liability would increase if you sold after June 25, 2024.
  • If you have significant accrued capital gains in a non-registered portfolio (more than $250,000), you will have to decide whether it makes sense to crystallize some of your gains at 50% prior to June 25 or continue to hold the investments and potentially face a 66.67% inclusion rate in the future.
  • If you hold significant stock options, you may want to consider exercising some options prior to June 25, before the combined $250,000 threshold kicks in for stock options and capital gains. 

2) Housing changes for first time home buyers

Much of the federal government’s housing strategy was announced last week, and housing was a central plank of their budget earlier this week. 

For example, budget 2024 announced the following measures:

  • First time home buyers will be allowed 30-year mortgage amortizations for newly constructed homes, with an insured mortgage. This will be available starting August 1, 2024.
  • The Home Buyers’ Plan limit will increase from $35,000 to $60,000 beginning April 16, 2024.
  • The budget is proposing to temporarily extend the grace period during which homeowners are not required to make Home Buyers’ Plan repayments to their RRSP by an additional three years. This would apply to Home Buyers’ Plan withdrawals between January 1, 2022 and December 31, 2025.

These measures, if enacted, will give first time homeowners a chance to increase their downpayment and reduce their mortgage payments by extending the amortization.

3) Entrepreneurs and small business owners

To encourage entrepreneurship, the budget is proposing the Canadian Entrepreneurs' Incentive which will reduce the inclusion rate to 33.33% on a lifetime maximum of $2 million in eligible capital gains. 

The incentive will result in a 33.33% capital gains inclusion rate, and the limit will increase by $200,000 each year, starting in 2025, until it reaches $2 million in 2034. 

  • An additional $2 million incentive will be available to founding investors in certain sectors who own at least 10% of the shares in their business, and where the company has been their principal employment for at least five years.
  • The lifetime capital gains exemption on the sale of small business shares and farming and fishing property will be increased to $1.25 million, effective June 25, 2024, and will continue to be indexed to inflation thereafter. 

When this incentive is fully rolled out, entrepreneurs will have a combined exemption of at least $3.25 million when selling all or part of their business.

4) Alternative Minimum Tax

The Alternative Minimum Tax (AMT) calculation imposes a minimum level of tax on high-income taxpayers who claim certain deductions, exemptions, and credits to reduce the tax they owe. Changes to the calculation were first proposed during budget 2023 and some amendments were announced in this week’s budget.

The most significant change is to the tax treatment of charitable donations. Individuals would be allowed to claim 80% of the Charitable Donation Tax Credit when calculating AMT, as opposed to the previously proposed 50%. This is favourable for high-income earners who make significant charitable donations and who may have been impacted by the previously proposed AMT changes.

The proposed amendments would apply to taxation years that begin on or after January 1, 2024.

Your CWB Wealth Advisor would be glad to discuss these and any other budget-related items if you have any questions.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a commentary such as this, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by CWB Wealth or any other person as to its accuracy, completeness, or correctness. Visit cwbwealth.com for the full disclaimer.

CWB Wealth is a business name and trademark of CWB Wealth Management Ltd. (CWB WM). CWB WM is a subsidiary of Canadian Western Bank and a member of the CWB Financial Group.