On April 16, 2024, the Finance Minister presented the 2024 federal budget. After years of speculation, this budget finally increases the capital gains inclusion rate, introduces tax relief on capital gains through an enhanced lifetime capital gains exemption, and sets forth the Canadian Entrepreneur Incentive among other measures aimed at compliance and fiscal evasion penalties. There’s much for financial advisors and investors to consider regarding first-time home buyers and more.

Capital Gains Inclusion Rate

The 2024 budget proposes increasing the capital gains inclusion rate from half to two-thirds for corporations and trusts. For individuals, the rate will remain at 50% on the first $250,000 of capital gains realized, and two-thirds on any gains over $250,000 starting from June 25, 2024.

Enhanced Lifetime Capital Gains Exemption

The budget plans to increase the lifetime capital gains exemption (LCGE) to apply up to $1.25 million of eligible capital gains. This adjustment aims to stimulate business sales to employee trust funds and support Canadian entrepreneurs through various incentives.

Canadian Entrepreneur Incentive

A new initiative will see reduced tax rates on capital gains from the sale of eligible shares by a qualifying individual, effectively halving the inclusion rate up to a cumulative cap of $2 million of capital gains over the individual’s lifetime. This is in addition to the LCGE.

Employee Trust Funds

Adjustments support business sales to employee trust funds, with tax breaks on the first $10 million of capital gains realized under certain conditions. This promotes employee ownership and participation in business growth.

Other Measures and Implications

The budget also addresses non-compliance and fiscal evasion with new rules, bolstering the integrity of the tax system. Moreover, it introduces measures to support homeownership and encourage the construction of secondary housing units.

In summary, this budget aims to balance fiscal needs with support for economic growth and property ownership while addressing immediate and future challenges.