Federal Budget Measures for Businesses

The 2024 federal budget tabled by Finance Minister Chrystia Freeland on April 16 contained several proposals that will impact the financial, tax and estate plans of Canadians. 

 

Tax Rates

There are no changes to corporate federal income tax rates or small business limit.

 

Lifetime Capital Gains Exemption

The Lifetime Capital Gains Exemption (LCGE) allows individuals to be exempt from taxes on capital gains realized on the disposition of qualified small business corporation (QSBC) shares and qualified farm or fishing property (QFFP).

The 2024 federal budget proposes to increase the LCGE by 25% to $1.25 million (from $1,016,836) for dispositions on or after June 25, 2024. This amount will continue to be indexed in 2026 and future years.

 

Canadian Entrepreneurs’ Incentive

The 2024 federal budget proposes to introduce the Canadian Entrepreneurs’ Incentive (CEI) to reduce the capital gains inclusion rate by one-half on the disposition of qualifying shares by an eligible individual starting January 1, 2025. The lifetime limit for this incentive would be phased in by increments of $200,000 per year beginning on January 1, 2025, to January 1, 2034, reaching the maximum limit of $2 million.

If the individual is subject to the two-thirds capital gains inclusion rate proposed in the 2024 budget, this incentive would reduce the inclusion rate to one-third on disposition of qualifying shares. This measure would apply in addition to any available lifetime capital gains exemption so entrepreneurs can benefit from an exemption up to $3.25 million after the incentive is fully rolled out.

 

Accelerated Capital Cost Allowance

Taxpayers may claim a deduction under the Capital Cost Allowance (CCA) system for the capital costs incurred to purchase certain depreciable property. The 2024 federal budget proposes to increase the CCA rate allowed for new eligible purpose-built rental housing from 4% to 10%.

To qualify, the property construction must begin after April 15, 2024, and before January 1, 2031. In addition, the property must be available for use before January 1, 2036.

 

Canada Carbon Rebate for Small Businesses

The budget proposes to introduce a new Canada Carbon Rebate for Small businesses where eligible corporations will receive an automatic refundable tax credit directly in proportion to the number of employees in each applicable province.

The tax credit for 2023 taxation year would be available to eligible corporations that file their 2023 tax return by July 15, 2024.

 

Non-compliance with information requests

The budget proposes to amend the Income Tax Act to allow the CRA to issue a “notice of non-compliance” where a person has not complied with CRA’s request for information or assistance.

Once enacted, the issuance of this notice would extend the normal reassessment period until the notice is outstanding and a penalty would apply of $50 for each day the notice is outstanding to a maximum of $25,000.

 

 

Article written by the Mackenzie Tax and Estate Team