We analyze the proposed federal budget measures, and the effect they may have on Canadians and their families.
April 16, 2024
By RBC Family Office Services
Deputy Prime Minister and Minister of Finance Chrystia Freeland released the federal budget on April 16, 2024, against a backdrop of Canadians facing the significant challenge of elevated costs of living. In light of the continued economic uncertainty, measures in the budget are targeted with the stated goal of building more affordable homes, making life cost less and growing the economy.
Although there are no proposed changes to the personal tax brackets, the budget proposes an increase to the capital gain inclusion rate. The budget also suggests several amendments to the alternative minimum tax (AMT) proposals, that include reducing the negative impact on the tax treatment of charitable donations.
The following is a summary of the most significant tax and wealth planning measures announced in the budget.
The budget proposes to increase the capital gains inclusion rate from 50 percent to 66.67 percent for corporations and trusts, and from 50 percent to 66.67 percent 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. The $250,000 threshold would effectively apply to capital gains realized by an individual, either directly or indirectly via a partnership or trust, net of any: current-year capital losses; capital losses of other years applied to reduce current-year capital gains; and capital gains in respect of which the LCGE, the proposed employee ownership trust (EOT) exemption or the proposed Canadian Entrepreneurs’ Incentive is claimed.
Claimants of the employee stock option deduction would be provided a 33.33 percent deduction of the taxable benefit (reduced from 50 percent) to reflect the new capital gains inclusion rate but would be entitled to a deduction of 50 percent of the taxable benefit, up to a combined limit of $250,000 for both employee stock options and capital gains.
Net capital losses of prior years would continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset. This means a capital loss realized prior to the rate change would fully offset an equivalent capital gain realized after the rate change.
For tax years that begin before and end on or after June 25, 2024, two different inclusion rates would apply. As a result, transitional rules would be required to separately identify capital gains and losses realized before the effective date (Period 1) and those realized on or after the effective date (Period 2). For example, taxpayers would be subject to the higher inclusion rate in respect of the portion of their net gains arising in Period 2 that exceed the $250,000 threshold, to the extent that these net gains are not offset by a net loss incurred in Period 1 or any other taxation years.
The annual $250,000 threshold for individuals would be fully available in 2024 (i.e., it would not be prorated) and would apply only in respect of net capital gains realized in Period 2. Other consequential amendments would also be made to reflect the new inclusion rate. Additional design details will be released in the coming months.
An individual is provided with a lifetime tax exemption for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property. The budget proposes to increase the LCGE from the current amount of $1,016,836 to $1.25 million. This increase would apply to dispositions that occur on or after June 25, 2024. The LCGE will resume indexation to inflation in 2026.
The budget proposes to introduce the Canadian Entrepreneurs’ Incentive. This incentive would reduce the tax rate on capital gains on the disposition of qualifying shares by an eligible individual. Specifically, this incentive would provide for a capital gains inclusion rate that is 50 percent the prevailing inclusion rate (i.e., 33.33 percent), on up to $2 million in capital gains per individual over their lifetime. The lifetime limit would be phased in by increments of $200,000 per year, beginning on January 1, 2025, before ultimately reaching a value of $2 million by January 1, 2034. Under the 66.67 percent capital gains inclusion rate proposed in the budget, this measure would result in an inclusion rate of 33.33 percent for qualifying dispositions. This measure would apply in addition to any available capital gains exemption.
A share of a corporation would be a qualifying share if certain conditions are met, including all the following conditions:
This measure would apply to dispositions that occur on or after January 1, 2025.
AMT is a parallel tax calculation that prevents high-income earners and certain trusts from paying little or no tax as a result of certain tax incentives, such as claiming certain tax deductions and credits. You pay the AMT or regular tax, whichever is highest. Further to the amendments announced in the 2023 budget, the government proposes changes, including:
These amendments would apply to taxation years that begin on or after January 1, 2024 (i.e., the same day as the broader AMT amendments).
The HBP helps eligible home buyers save for a downpayment by allowing them to withdraw up to $35,000 from a registered retirement savings plan (RRSP) to purchase or build their first home, or a home for a specified disabled individual, without having to pay tax on the withdrawal.
To provide eligible home buyers with greater access to their RRSPs, the budget proposes to increase the HBP withdrawal limit from $35,000 to $60,000. This increase would also apply to withdrawals made for the benefit of a disabled individual. Couples purchasing a home jointly may therefore be able to withdraw up to $120,000 from their RRSPs to purchase a first home. While this measure applies to the 2024 and subsequent calendar years in respect of withdrawals made after April 16, 2024, be sure to check with your financial institution whether the increase in the withdrawal limit will be implemented prior to this measure receiving royal assent.
Amounts withdrawn under the HBP must be repaid to an RRSP over a period not exceeding 15 years, starting the second year following the year in which a first withdrawal was made. The budget proposes to temporarily defer the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025. Accordingly, the 15-year repayment period would start the fifth year following the year in which a first withdrawal was made. For a couple who withdrew the maximum in 2023, extending the grace period could allow them to defer annual repayments as large as $4,667 by an additional three years.
Registered plans can only invest in qualified investments, including mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates. The qualified investment rules can be inconsistent or difficult to understand in some cases. As such, the budget invites stakeholders to provide suggestions on how the qualified investment rules could be modernized on a prospective basis to improve the clarity and coherence. Stakeholders are invited to submit comments to QI-consultation-PA@fin.gc.ca by July 15, 2024.
An EOT is a form of employee ownership where a trust holds shares of a corporation for the benefit of the corporation’s employees. EOTs can be used to facilitate the purchase of a business by its employees, without requiring them to pay directly to acquire shares.
The budget provides further details on the capital gains exemption announced in the 2023 Fall Economic Statement available to business owners who sell their business to an EOT. The exemption, worth $10 million, will be available to individuals (other than trusts) on the sale of shares to an EOT if certain conditions are met. The total exemption that can be claimed for any qualifying business transfer to an EOT cannot exceed $10 million. Therefore, if multiple individuals dispose of the shares to an EOT as part of a qualifying business transfer, and each individual qualifies for the exemption, the individuals would be required to agree on how to allocate the exemption.
The exemption will no longer be available if a disqualifying event occurs within 36 months of sale. If the exemption was already claimed, it would be retroactively denied. Disqualifying events include the EOT losing its status as an EOT or if less than 50 percent of the FMV of the qualifying business’ shares is attributable to assets used principally in an active business at the beginning of two consecutive taxation years of the corporation. If a disqualifying event occurs after 36 months following the sale, the EOT will be deemed to realize a capital gain equal to the total amount of exempt capital gains.
Capital gains exempted through this measure would be subject to an inclusion rate of 30 percent for the purposes of the AMT.
The budget proposes to expand qualifying business transfers to include the sale of shares to a worker cooperative corporation that meets the definition under the Canada Cooperatives Act. The government will release further details on the application of the exemption in a sale to a worker cooperative.
This measure would apply to qualifying dispositions of shares that occur between January 1, 2024, and December 31, 2026.
The CCA system determines the deductions that a business may claim each year for income tax purposes in respect of the capital cost of its depreciable property. Currently, purpose-built rental buildings are eligible for a CCA rate of 4 percent under Class 1. The budget proposes a temporary accelerated CCA of 10 percent for new eligible purpose-built rental projects that begin construction on or after April 16, 2024, and are available for residents to move in before January 1, 2036. Accelerating CCA will increase after-tax returns on investments for builders, allowing them to recover more of their costs faster, enabling further investment of their money back into new housing projects.
Investments eligible for this measure would continue to benefit from the Accelerated Investment Incentive, which currently suspends the half-year rule, providing a CCA deduction at the full rate for eligible property put in use before 2028. After 2027, the half-year rule would apply, limiting the CCA allowance in the year an asset is acquired to half of the full CCA deduction.
Budget 2021 announced an earnings stripping measure that limits the amount of net interest and financing expenses that may be deducted by certain taxpayers in computing taxable income. Legislative proposals to implement these excessive interest and financing expenses limitation (EIFEL) rules are currently before Parliament in Bill C-59.
The EIFEL rules provide an exemption for interest and financing expenses incurred in respect of arm’s length financing for certain public-private partnership infrastructure projects. The budget proposes expanding this exemption to also include an elective exemption for certain interest and financing expenses incurred before January 1, 2036, in respect of arm’s length financing used to build or acquire eligible purpose-built rental housing in Canada.
This change would apply to taxation years that begin on or after October 1, 2023, which is consistent with the broader EIFEL amendments.
Currently, assets included in Class 44 (patents or the rights to use patented information for a limited or unlimited period), Class 46 (data network infrastructure equipment and related systems software), and Class 50 (general-purpose electronic data-processing equipment and systems software) are prescribed CCA rates of 25 percent, 30 percent and 55 percent, respectively. The budget proposes to provide immediate expensing for new additions of property in respect of these three classes, if the property is acquired on or after April 16, 2024, and becomes available for use before January 1, 2027. The enhanced allowance would provide a 100 percent first-year deduction and would be available only for the year in which the property becomes available for use. When the taxation year is less than 12 months, the accelerated CCA that can be claimed must be prorated.
The budget proposes amendments to the ITA to address situations where a corporate group is using a mutual fund corporation to benefit from the special rules available to these corporations in an unintended manner. This measure is meant to address specific cases, and not, for example, widely held corporate class mutual funds or other widely held pooled investment vehicles.
The budget announces that the federal government, in coordination with provincial partners, proposes to make technical amendments to the CPP legislation. These amendments would:
The government has drafted new legislation, the Canada Disability Benefit Act (CDDA), which creates a new benefit directed to low-income working-age persons with disabilities. The intention is to bridge the gap in the federal social safety net between the Canada Child Benefit (CCB) and Old Age Security (OAS) and is intended to supplement existing provincial and territorial income support measures.
The government intends for the CDDA to come into force in June 2024 with payments beginning in July 2025. The proposed maximum benefit amount is $2,400 per year for low-income persons with a valid Disability Tax Credit certificate between the ages of 18 and 64. The government intends to consult with persons with disabilities on key elements of the benefit’s design, including the maximum income threshold and phase-out rates.
The CCB is an income-tested benefit that is paid monthly and provides support for eligible families with children under the age of 18. A CCB recipient becomes ineligible for the CCB in respect of a child the month following the child’s death. The budget proposes to amend the ITA to extend eligibility for the CCB in respect of a child for six months after the child’s death (the “extended period”), if the individual would have otherwise been eligible for the CCB in respect of that particular child. A CCB recipient would still be required to notify the Canada Revenue Agency (CRA) of their child’s death before the end of the month following the month of their child’s death. The extended period would also apply to the Child Disability Benefit, which is paid with the CCB in respect of a child eligible for the Disability Tax Credit. This measure would be effective for deaths that occur after 2024.
The ITA includes anti-avoidance rules that make a transferee jointly and severely liable with the transferor for the transferor’s tax debts in cases where property was transferred to avoid paying tax liabilities. Although there are existing rules to combat this type of planning, the budget proposes to deem certain transactions to have been completed for the purpose of tax debt avoidance. This deeming rule will apply in situations where property has been transferred from a tax debtor to a person and, as part of the same transaction or series, property has been received by a non-arm’s length person.
The ITA imposes penalties for tax debt avoidance on those who engage in, participate in, assent to or acquiesce in planning activity that they know, or would reasonably be expected to know, is tax debt avoidance planning. The penalty is equal to the lesser of: (1) 50 percent of the tax that is avoided; and (2) $100,000 plus any amount the person, or a related person, is entitled to receive or obtain in respect of the planning activity.
Previously, the courts have held that a taxpayer who engages in tax debt avoidance planning is normally not jointly and severally liable for the portion of the tax debt that has effectively been retained by the planner as a fee. The budget proposes that taxpayers who participate in tax debt avoidance planning be jointly and severally liable for the full amount of the avoided tax debt including the fee paid to advisors for tax debt avoidance planning.
Similar amendments will be made to other comparable provisions in other federal statutes including Select Luxury Items Tax Act and Underused Housing Tax Act. These measures would apply to transactions or series of transactions that occur on or after April 16, 2024.
The budget proposes to improve the operation of the rules related to registered charities and other qualified donees, including the following measures.
The budget proposes to extend the period for which qualifying foreign charities are granted status as a qualified donee from 24 months to 36 months. This measure would apply to foreign charities registered after April 16, 2024.
The budget proposes a number of changes to simplify the issuance of official donation receipts and to align the process for issuing receipts with modern practices of charities. For example, the budget proposes to remove the requirement that official donation receipts contain the place of issuance of the receipt; the name and address of the appraiser (if an appraisal of the donated property has been done); and the middle initial of the donor.
The budget also proposes to expressly permit charities to issue official donation receipts electronically, provided they contain all required information, they are issued in a secure and non-editable format, and the charity maintains an electronic copy of the receipts.
The measures relating to modernizing service and donation receipts would apply upon royal assent.
The budget proposes several amendments to the information gathering provisions of the ITA with the intention of enhancing the efficiency and effectiveness of tax audits and to facilitate the collection of tax revenues on a timelier basis.
The budget proposes to allow the CRA to issue a new notice, the “notice of non-compliance,” to a taxpayer who has not complied with a requirement or notice to provide assistance or information issued by the CRA. Where a notice of non-compliance has been issued, the normal reassessment period for any taxation year of the taxpayer to which the notice relates would be extended by the period of time the notice is outstanding. A penalty will be imposed on the taxpayer of $50 each day the notice is outstanding, to a maximum of $25,000.
The budget proposes to allow the CRA to include a requirement or notice that any required information or documents be provided under oath.
The budget proposes to impose a penalty when the CRA obtains a compliance order against a taxpayer and to allow the CRA to seek a compliance order when a person has failed to comply with a requirement to provide foreign-based information or documents. The proposed penalty would be equal to 10 percent of the aggregate tax payable by the taxpayer in respect of the taxation year or years to which the compliance order relates, and will only be applied if the tax owing in respect of one of the taxation years to which the compliance order relates exceeds $50,000.
The budget proposes to expand the applications of the rules that extend the reassessment period (also known as “stop the clock” rules) to cases where a taxpayer, or a person who does not deal at arm’s length with the taxpayer, seeks judicial review of any requirement or notice issued to the taxpayer by the CRA in relation to the audit and enforcement process or during a period of an outstanding notice of non-compliance.
These proposed changes would apply to all statutes administered by the CRA. These amendments would come into force on royal assent of the enacting legislation.
The budget confirms the government’s intention to proceed with a number of previously announced legislative proposals, including (not an exhaustive list):
Prior to implementing any strategies, individuals should consult with a qualified tax advisor, legal professional or other applicable professional.
While it has been the long-standing practice of the CRA to allow taxpayers to file their tax returns based on proposed legislation, a taxpayer remains potentially liable for taxes under current law in the event that a budget proposal is not ultimately passed. Therefore, if proposed legislation does not become law, it is possible that the CRA may assess or re-assess your tax return based on existing legislation. It is recommended that you consult a qualified tax advisor to assist you in assessing the costs and benefits of proceeding with specific budget proposals as they relate to you.
This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc. (RBC DS)*, RBC Phillips, Hager & North Investment Counsel Inc. (RBC PH&N IC), RBC Wealth Management Financial Services Inc. (RBC WMFS), Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliates, RBC Direct Investing Inc. (RBC DI)* and Royal Mutual Funds Inc. (RMFI)*. *Member – Canadian Investor Protection Fund. Each of the Companies, their affiliates and the Royal Bank of Canada are separate corporate entities which are affiliated. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and mutual fund representatives of RMFI, Investment Counsellors who are employees of RBC PH&N IC, Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC DS. In Quebec, financial planning services are provided by RMFI or RBC WMFS and each is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI or RBC DS. Estate and trust services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies, RBC DI or RMFI, clients may request a referral to another RBC partner. Insurance products are offered through RBC Wealth Management Financial Services Inc., a subsidiary of RBC Dominion Securities Inc. When providing life insurance products in all provinces except Quebec, Investment Advisors are acting as Insurance Representatives of RBC Wealth Management Financial Services Inc. In Quebec, Investment Advisors are acting as Financial Security Advisors of RBC Wealth Management Financial Services Inc. RBC Wealth Management Financial Services Inc. is licensed as a financial services firm in the province of Quebec. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, RBC WMFS, RBC DI, Royal Bank of Canada or any of its affiliates or any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. In certain branch locations, one or more of the Companies may carry on business from premises shared with other Royal Bank of Canada affiliates. Notwithstanding this fact, each of the Companies is a separate business and personal information and confidential information relating to client accounts can only be disclosed to other RBC affiliates if required to service your needs, by law or with your consent. Under the RBC Code of Conduct, RBC Privacy Principles and RBC Conflict of Interest Policy confidential information may not be shared between RBC affiliates without a valid reason. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence. © Royal Bank of Canada 2024. All rights reserved.
RBC Wealth Management is a business segment of Royal Bank of Canada. Please click the “Legal” link at the bottom of this page for further information on the entities that are member companies of RBC Wealth Management. The content in this publication is provided for general information only and is not intended to provide any advice or endorse/recommend the content contained in the publication.
® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © Royal Bank of Canada 2025. All rights reserved.
We want to talk about your financial future.