After several weeks of announcements leading up to the Liberals’ new 2024 federal budget, we thought we’d summarize some of the key points that are more likely to resonate with you among the plethora of measures announced.
To no one’s surprise, the Quebec government announced yesterday that it will match the new capital gains inclusion rate announced by the federal government. According to their estimates, this adjustment will bring in close to $3 billion over five years.
Increased capital gains inclusion rate
First of all, this change will only impact investments in corporations, trusts and non-registered investment accounts. Investments in registered plans such as RRSPs, TFSAs, LIRAs, RRIFs, etc. will not be impacted.
To fully understand this measure, it is important to realize that for individuals, it will only have an impact if capital gains of more than $250,000 are realized within a given calendar year. For all individual capital gains between $0 to $250,000 in a given year, there will be no change. Gains on principal residences are excluded, as they remain non-taxable. This will affect second homes, residential and commercial properties, investments in non-registered accounts and investments in companies or trusts. For non-registered investments, it should be remembered that the capital gain triggered in a given year can be managed to a certain extent so as not to be impacted by this new measure. Although more difficult for real estate, there may be other strategies implemented in the future to try to minimize the impact as well; such as multi-ownership where possible, for example.
Most certainly one of the flagship announcements of the 2024 federal budget, the government has announced that the capital gains inclusion rate will increase from 50% to 66.67% for corporations and trusts; and for the portion of capital gains realized during the year in excess of $250,000 for individuals. This new inclusion rate will come into effect for capital gains realized on or after June 25, 2024. Certain deductions may apply in specific cases.
Net capital losses of prior years will continue to be deductible against taxable capital gains of the current year. They will be adjusted to reflect the new inclusion rate, but a loss realized before the change should still be able to fully offset a gain after the change.
Since the measure will come into effect on June 25, 2024, it will be possible to have different inclusion rates apply to gains realized during the year, depending on when they were triggered.
In addition, the $250,000 threshold for individuals should be available in full for the year 2024, and would not be prorated based on the measure’s effective date.
Housing
Home Buyers’ Plan (HBP)
The budget proposes to increase the Home Buyers’ Plan eligible amount limit from $35,000 to $60,000 for all withdrawals made after the budget announcement on April 16, 2024.
It also proposes to extend the HBP repayment grace period by a further 3 years, from 2 to 5 years. This measure would apply retroactively to all HBP withdrawals made between January 1, 2022 and December 31, 2025.
30-year mortgage amortization
The government is also announcing the authorization of 30-year amortization mortgages for first-time new-home buyers. These new insured loans will be available as of August 1, 2024, as regulatory changes must be made first.
Additional units for single-family homes
The 2024 budget announces that the government will offer low-interest loans of $40,000 to homeowners who add secondary suites to their homes. The details of this offer are not yet known, but they have announced an amount of $409.6M over 4 years starting in 2025.
Entrepreneurs and corporations
Lifetime capital gains exemption
Another important measure announced in the budget is the increase in the lifetime capital gains exemption limit. For 2024, the maximum was set at $1,016,836. As of June 25, 2024, it will be increased to $1,250,000 for shares sold on or after that date. The ceiling is typically indexed annually, but given the 2024 increase, indexation will resume in 2026.
The lifetime capital gains exemption allows, when certain conditions are met, to exclude a portion of the eligible capital gain realized on the sale of qualified small business shares or qualified farm or fishing property.
Canadian Entrepreneur’s Incentive
This incentive will reduce the tax rate on capital gains on the disposition of eligible shares by an eligible individual.
Under this measure, the current capital gains inclusion rate would be cut in half for up to $2 million in capital gains over an individual’s lifetime. With the announcement of the new inclusion rate, this would mean that the inclusion rate for that portion would decrease from 66.67% to 33.33%.
The lifetime limit will be phased in at a rate of $200,000 per year, starting January 1, 2025, and reaching the $2M limit in 2034.
If you have any questions or would like to discuss this further, please do not hesitate to contact us.
This information has been prepared by Mathieu Garand who is an investment advisor at iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The investment advisor can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
