On December 16, 2024, the Federal government released a fiscal update in its 2024 Fall Economic Statement (FES), which introduces a number of affordability and housing measures.
Key income tax proposals introduced in the FES affecting individuals and private corporations include the following:
Exempting the Canada Disability Benefit from Tax
The Canada Disability Benefit is a new program under which the Government of Canada intends to provide up to $2,400 annually to support low-income, working-age Canadians, who are eligible for the Disability Tax Credit, beginning in July 2025.
The FES proposes to exempt amounts received under the Canada Disability Benefit from income under the Income Tax Act, so that income-tested benefits and programs are not reduced as a result of these payments. This measure would apply to the 2025 and subsequent taxation years.
Capital Gains Rollover on Business Investment
The current tax legislation allows individuals to defer taxation on capital gains realized on the qualifying disposition of Eligible Small Business Corporation (ESBC) shares to the extent that proceeds from the disposition are used to acquire replacement ESBC shares within the year of disposition, or up to 120 days following that year. The FES proposes to expand what qualifies as an ESBC share for the existing capital gains rollover of small business shares and to relax certain conditions for the rollover to apply. Specifically, the proposals will allow preferred shares (in addition to common shares) to qualify for the rollover, increase the asset limit of the ESBC (and related corporations) to $100 million (from $50 million), and increase the length of the period to acquire new investments to within the year of disposition and one full calendar year following the year of disposition. These changes would apply to qualifying dispositions that occur on or after January 1, 2025.
Scientific Research and Experimental Development ("SR&ED") Reform
Reform and enhancement of the SR&ED tax incentive program, by proposing to:
- Increase the annual expenditure limit on which Canadian-controlled private corporations are entitled to earn an enhanced 35 per cent investment tax credit, from $3 million to $4.5 million;
- Increase the prior-year taxable capital phase-out thresholds for the enhanced credit from $10 million and $50 million to $15 million and $75 million, respectively;
- Extend the enhanced refundable credit to certain Canadian public corporations; and,
- Restore the eligibility of capital expenditures for both the deduction against income and the investment tax credit components of the SR&ED program.
To encourage the development and retention of intellectual property in Canada, the 2024 Fall Economic Statement also announced the government's intent to implement a patent box regime. The government further announced that it is reviewing feedback from consultations held earlier this year and will provide details of the patent box regime in Budget 2025.
Extension of the Accelerated Investment Incentive and Immediate Expensing Measures
Fully reinstate the Accelerated Investment Incentive, which provides an enhanced first-year capital cost allowance (CCA) for depreciable property, as well as immediate expensing for manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment and zero emission vehicles. These incentives would apply to qualifying property acquired on or after January 1, 2025, and that becomes available for use before 2030. The full re-instatement of these measures would be followed by a four-year phase-out between 2030 and 2033.
Previously Announced Measures
The 2024 Fall Economic Statement also confirmed the government's intention to proceed with many previously announced tax and related measures, including:
- Legislative proposals included in the notice of ways and means motion tabled on September 23, 2024, related to capital gains and the lifetime capital gains exemption; and
- Legislative and regulatory proposals released on August 12, 2024, which include the Canadian Entrepreneurs' Incentive ("CEI"), Alternative Minimum Tax ("AMT") and the Employee Ownership Trust ("EOT") Tax Exemption proposals, amongst others.
For more information regarding these proposals, including a link to the full 2024 Fall Economic Statement, please see the Department of Finance release:
2024 Fall Economic Statement
