Capital Gains Rate
In the event of a disposition of capital assets by a taxpayer, it has been a long-standing practice to incorporate any capital gains into the taxpayer’s income at a rate of 50%. However, recent budgetary proposals suggest an escalation in the capital gains inclusion rate from 50% to 67% for corporations, trusts, and individuals. This proposed adjustment is slated to take effect for dispositions occurring on or after June 25, 2024.
For individual taxpayers, the revised capital gains inclusion rate of 67% will be applicable to capital gains exceeding $250,000, with transitional rules in place. In tandem with these changes, the deduction related to the taxable benefit of employee stock options is proposed to be reduced to 33%, reflecting the new capital gains inclusion rate.
Canadian Entrepreneur’s Incentive
The newly proposed budget introduces a significant incentive aimed at reducing the tax burden on capital gains resulting from the disposition of qualifying shares. This incentive, which is set to take effect on or after January 1, 2025, is available to eligible individuals. It offers a capital gains inclusion rate that is half of the prevailing rate, applicable to up to $2 million in capital gains per individual over their lifetime.
This $2 million limit will be gradually implemented over a span of 10 years, with annual increments of $200,000, culminating in the full $2 million by January 1, 2034. Considering the recent increase in the capital gains inclusion rate to 67%, the application of this incentive would effectively result in an inclusion rate of 33% for qualifying dispositions.
Tax on Vacant Lands
In alignment with the government’s objective to address Canada’s housing crisis, the budget announcement reveals a consideration for the introduction of a new tax on residentially zoned vacant land. This initiative is aimed at mobilizing unused land for residential development. The government plans to initiate consultations later this year to further discuss and refine this proposal.
Accelerated Capital Cost Allowance (CCA)
Corporations possessing depreciable property are currently entitled to claim a Capital Cost Allowance (CCA) deduction against their business income. Specifically, housing units constructed for rental purposes, also known as purpose-built rental buildings, are eligible for a CCA deduction at a rate of 4% per annum.
The recent budget proposal introduces an accelerated CCA of 10%, marking an increase from the existing 4%. This accelerated rate is applicable to new eligible purpose-built rental projects that commence construction on or after April 16, 2024, and before January 1, 2031, and are available for use before January 1, 2036.
Investments qualifying for this measure will continue to benefit from the accelerated investment incentive, which suspends the half-year rule for eligible property put into use before 2028.
Lifetime Capital Gain Exemption
Lifetime capital gain exemption increased from $1.016,836 to $1.25 million effective for disposition after June 25, 2024.
Home Buyer Plan
The Registered Retirement Savings Plan (RRSP) serves as a valuable tool for individuals aiming to purchase their first home. It allows for a tax-free withdrawal, provided that the amount withdrawn is repaid to the RRSP within a 15-year timeframe. The recent budgetary proposal introduces an increase in the withdrawal limit from $35,000 to $60,000. Additionally, it proposes a deferment of the commencement of the 15-year repayment period by an extra 3 years. This adjustment aims to provide individuals with greater financial flexibility in their journey towards home ownership.
Tradespersons Travel Expense
Qualified workers in the construction sector can claim deductions of up to $4,000 annually for eligible travel and relocation costs. The budget reveals that the government is contemplating the introduction of a unified, streamlined deduction for such eligible tradespeople.
Disability Support Deduction
The Disability Support Deduction is a provision that permits individuals with physical or mental impairments to claim deductions on specific expenses, provided they meet certain criteria. This deduction aims to alleviate the financial burden associated with managing their condition.
In a recent development, the budget has proposed an expansion of this provision. The proposal seeks to broaden the scope of eligible expenses that can be claimed under this deduction. However, this expansion is also subject to certain conditions that must be met by the individuals claiming the deduction. This proposed change is expected to provide further financial relief to individuals with disabilities. It underscores our commitment to creating a more inclusive and supportive fiscal environment for all citizens.
