2024 Federal Budget: Fairness for Every Generation

The most significant income tax change in Budget 2024: the capital gains inclusion rate rises from 50% to 66.67% (two-thirds) for gains realized on or after June 25, 2024. For individuals, the lower 50% inclusion rate is preserved on the first $250,000 of annual capital gains. Corporations and trusts lose the $250,000 annual threshold and face the 66.67% rate on all capital gains.

To partially offset the capital gains inclusion rate increase, the Lifetime Capital Gains Exemption for qualifying small business shares and farm/fishing property increases to $1.25 million, up from $1,016,602. This provides additional relief for entrepreneurs and farmers selling qualified property. The LCGE amount will be indexed to inflation going forward.

The Alternative Minimum Tax rate increases to 20.5% from 15%, and the AMT exemption amount rises to $173,205. The AMT base is broadened to include 100% of capital gains (previously 80%), and adjustments for charitable donations are reduced. The enhanced AMT is estimated to raise approximately $3.9 billion over five years, primarily from Canadians with incomes over $1 million.

A new Canadian Entrepreneurs' Incentive reduces the capital gains inclusion rate to one-third for qualifying small business founders. The incentive applies to gains on shares of a Canadian Controlled Private Corporation where the founder owned at least 10% of the shares for a continuous period. Maximum lifetime benefit is $2 million of capital gains, phasing in at $200,000 per year from 2025 to 2034.

The second phase of CPP enhancement launches in 2024 with a new upper earnings band. Employees earning above the Year's Maximum Pensionable Earnings ($68,500 in 2024) contribute 4% on earnings up to the Year's Additional Maximum Pensionable Earnings ($73,200). This creates a second CPP benefit tier and increases payroll costs for higher-earning Canadians and their employers.

Budget 2024 confirms the FHSA, launched April 1, 2023, is operating as intended and provides tax reporting guidance. First-time home buyers can contribute $8,000 per year to a maximum lifetime amount of $40,000. Contributions are tax-deductible and withdrawals for qualifying home purchases are tax-free, combining the best features of an RRSP and TFSA.

Budget 2024 introduces a Residential Mortgage Charter requiring federally regulated lenders to proactively contact eligible homeowners facing mortgage renewal challenges. Lenders must offer tailored relief including extending amortization periods, waiving interest-on-interest charges, and providing temporary payment deferrals. This does not create a tax change but affects cash flow for mortgage holders.

A new $1 billion National School Food Program provides nutritious meals to 400,000 additional children per year. The program is delivered in partnership with provincial and territorial governments. Families do not receive a direct tax benefit, but the program reduces family food expenses and improves child nutritional outcomes.

The rural top-up to the Canada Carbon Rebate increases from 10% to 20% for eligible rural Canadians. Residents of small and rural communities outside census metropolitan areas receive higher quarterly payments to account for their greater dependence on personal vehicles and limited access to public transit. The change applies retroactively to the April 2024 payment.

Technical amendments improve the Employee Ownership Trust framework introduced in Budget 2023. The qualifying rules for EOT sales are clarified, and the five-year tax payment deferral is confirmed. Business owners who sell to an EOT structured as a qualifying business transfer can spread their capital gains tax obligation over five years.