After several weeks of announcements in preparation for the Liberals’ new federal budget for 2024, we thought we’d do a summary of some of the key points that are more likely to affect you among the plethora of measures announced.
Unsurprisingly, the Quebec government announced yesterday that it would align itself with the new capital gains inclusion rate that the federal government announced. This adjustment will bring in, according to their estimates, nearly $3 billion over five years.
Increase in the Capital Gains Inclusion Rate
First, this change will only impact investments in corporations, trusts and non-registered investment accounts. Investments in registered plans such as RRSPs, TFSAs, FHSAs, 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 and $250,000 in a year, there will be no change. Gains on primary residences are excluded since they remain non-taxable. This will affect second homes, residential and commercial buildings, investments in non-registered accounts and investments in companies or trusts. For non-registered investments, it should not be forgotten that the capital gain triggered in a given year can be controlled to a certain extent in order not to be impacted by this new measure. Although more difficult for buildings, there could be other strategies implemented in the future to try to minimize the impacts as well; such as holding with multiple owners when possible for example.
Certainly one of the flagship announcements of the 2024 federal budget, the government announced that the capital gains inclusion rate would 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 take effect for capital gains realized on or after June 25, 2024. Some deductions may apply in special cases.
Net capital losses from previous years will continue to be deductible against taxable capital gains in 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 force on June 25, 2024, it will be possible to have different inclusion rates that will 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 from the effective date of the measure.
Housing
Home Buyers’ Plan (HBP)
The budget proposes to increase the limit on the amount eligible under the Home Buyers’ Plan ($35,000); increasing it from $35,000 to $60,000 for all withdrawals made after the budget announcement, i.e. April 16, 2024.
It also proposes to extend the grace period for the repayment of the HBP withdrawal by an additional 3 years, from 2 years to 5 years. This measure would apply retroactively to all HBP withdrawals madebetween January 1 , 2022 and December 31, 2025.
30-year mortgage amortization
The government also announced the authorization of mortgages with a 30-year amortization for first-time home buyers. These new insured loans will be available asof August 1 , 2024 as regulatory changes must be made beforehand.
Addition of Dwelling Units to Single-Family Homes
Budget 2024 announces that the government will offer $40,000 loans with a low interest rate to homeowners who add a unit to their home. 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 companies
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. Effective June 25, 2024, it will be increased to $1,250,000 for shares sold on or after that date. The limit is typically indexed annually, but considering the 2024 increase, indexation will resume starting in 2026.
The lifetime capital gains exemption allows, where certain conditions are met, to exclude a portion of the qualifying capital gain realized on the sale of qualified small business corporation shares or qualified farm or fishing property.
Incentive for Canadian Entrepreneurs
This incentive will reduce the capital gains tax rate on the disposition of qualified shares by an eligible individual.
This measure would halve the existing capital gains inclusion rate for up to $2 million in capital gains for an individual during his or her lifetime. With the announcement of the new inclusion rate, this would mean that the rate for this portion would increase from 66.67% to 33.33%.
The cumulative cap will be phased in at a rate of $200,000 per year,starting on January 1, 2025, to reach the $2M cap in 2034.
Do not hesitate if you have any questions or would like to discuss them further.