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The 2024 Canadian Federal Spring Budget Brings New Tax Measures

Posted under: News

On April 16th, 2024, the Canadian Finance Minister released her most recent budget. Budget 2024 announces new tax measures that impact both personal and business taxes.  Of particular note, there were proposed changes to increase the capital gains inclusion rate as follows:

  • For individuals, the inclusion rate on capital gains realized annually above $250,000 will increase from one-half to two-thirds, effective June 25, 2024. The inclusion rate for capital gains realized annually up to $250,000 will continue to be one-half.
  • For corporations and trusts, the inclusion rate on all capital gains realized will increase from one-half to two-thirds, effective June 25, 2024.

In both cases above, a special determination will be needed for 2024 to indicate how much in capital gains was realized before and after June 25.

While the capital gains inclusion tax change does not impact the usage of Individual Pension Plans (IPPs) or Retirement Compensation Arrangements (RCAs) directly, the ability for an IPP or RCA to extract assets from a corporation on a corporate pre-tax basis, and to tax-shelter any realized capital gains from investments, is now a more compelling solution for business owners and incorporated professionals.  Funding an IPP or RCA, and investing in equities within these vehicles, would be more desirable as it allows you to shelter such capital gains from the higher inclusion rate. Further to that, the passive income grind on the $500,000 small business deduction (SBD) limit, based on passive asset income realized in a corporation, continues to be a wealth-building challenge for owners of corporations. By using an IPP or RCA, the income realized in the IPP or RCA would not impact the SBD available.

One other area of note was the clarification regarding charitable gifting, where 80% of the donation tax credit can be claimed by those paying alternative minimum tax as opposed to the 50% that was initially proposed. This is welcome news for charities and for our clients who donate their life policies to charity at the fair market value. There were no measures in the budget that impacted Health Benefit Plans or the Fair Market Valuation of life insurance policies.  Similarly, no measures within the budget affected corporate sponsored pension plans, or the amounts required to fund such plans or the amounts that can be provided to plan members.  The federal government is investigating ways to encourage pension funds to invest more in Canada.  Although the budget was lengthy in size, there were no changes of note that directly impact the solutions offered at GBL.

Founded in 1995, GBL is a leading provider of retirement, health, and cross-border solutions for business owners across Canada. With offices in Calgary and Toronto, we have served 6,000+ clients, have 3,000+ Financial/Investment Advisors in our network, actively manage 2,000+ IPPs and RCAs, and have created 1,000+ HBPs and 3,000+ FMVs. We’re known for our industry leading client service and administration, as well as our top-notch actuarial group. Contact us today at  [email protected] or 403.249.1820 and follow us to learn how we can help Build Your Future.